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BUSINESS • 17/04/2025 02:05 PM

APAC Banking Sector Remains Mostly Resilient Amid US Tariff Risks - Fitch Ratings

KUALA LUMPUR, April 17 (Bernama) --  Fitch Ratings is maintaining its mostly neutral outlook for the banking sector across several Asia Pacific (APAC) economies, including Malaysia, noting that they are more resilient to a higher United States (US) tariff regime.

In a statement, the rating agency said this is due to the economies’ generally lower direct export exposure to the US.

Although it had initially anticipated broadly stable operating conditions across most APAC banking systems this year, a surge in US tariffs could threaten this assumption in some markets.

"The effect of the trade war on specific banking systems in the region will depend on final tariff outcomes, their impact on local economic growth, banks’ exposure to vulnerable sectors, and the potential for changes in fiscal, monetary or credit policy," it said.

Its current neutral outlook for the Korean, Taiwanese and Thai banking sectors in 2025 could move to ‘deteriorating’ if there are substantial further increases in US tariffs beyond the 10 per cent tariff imposed on all US trade partners on April 2, or if the hit to their economic growth is more severe than expected, it said.

“This could occur if the US moves ahead with the higher country-specific ‘reciprocal tariffs’ that are currently paused, for example, or because of higher tariffs on sectors such as electronics (including semiconductors),” said Fitch Ratings.

It added that bank asset quality in specific sectors could be adversely affected by additional US tariff hikes or indirect trade effects.

"For example, banks’ performance could weaken if China’s economic growth slows due to the tariffs, hitting demand for exports from their home markets.

"The trade war could also prompt national authorities to cut policy interest rates faster than we had assumed, which would lower banking sector net interest margins (NIM) in most markets," it said.

Fitch Ratings added that any changes in sector outlooks should have little impact on its banking system operating environment scores, which remain relatively stable, although China’s would potentially face the most downward pressure.

-- BERNAMA

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