Indonesian shares dropped 1.3 percent after the U.S. Federal Reserve held interest rates steady on Wednesday and signalled little appetite to adjust them any time soon.
"Chair (Jerome) Powell delivered a not-so-dovish delight for equity markets," said Stephen Innes, managing partner and head of trading, SPI Asset Management.
Banking stocks dominated losses on the Indonesian benchmark index, which fell the most in Southeast Asia. Bank Danamon Indonesia Tbk PT slumped 19.8 percent to its lowest close since Oct. 24, 2018.
Some banks have reported higher loan risks, which has served as a warning for worsening asset quality going forward, said Lucky Ariesandi, a research analyst with PT Bahana Securities.
Considering that the Fed will stand pat and the local central bank is expected to cut rates before the end of the year, there are no catalysts for banks in the near term, he added.
While a rate cut by Bank Indonesia would help bolster growth, it would put pressure on earnings of the financial sector as margins would thin out.
Malaysian shares dropped to a more than one-week closing low, with DiGi.Com Bhd declining the most in four-and-a-half months.
Singapore shares, which have outperformed other regional markets so far this year, slipped 0.2 percent.
DBS Group Holdings Ltd, Southeast Asia's largest lender, dropped 2.3 percent, its biggest in almost six months, and accounted for most of the losses on the city-state's main index.
Philippine stocks firmed to a more than three-week closing high as investors took heart from S&P Global's move to raise the country's long-term rating to "BBB+" on a strong growth trajectory.
Universal Robina Corp surged 7.7 percent to its highest close in more than a year and was the biggest boost to the benchmark stock index.
Thai shares scaled a near six-month high on the back of gains in consumer and utilities stocks.
(Reporting by Aditya Soni in Bengaluru; Editing by Subhranshu Sahu)
By Aditya Soni
