SoKor, Taiwan, Thailand's banks face deteriorating outlook on trade exposures

These three have hig export exposure and sales to the US.

The banking sectors of South Korea, Taiwan, Thailand, Hong Kong, and China face deteriorating outlooks for 2025 on the back of trade war exposures will weaken loan growth and profits.

South Korea, Taiwan, and Thailand's outlooks were moved to deteriorating from neutral, partly because banks’ loan growth, asset quality, and profitability are likely to weaken as tariffs rise given their higher export exposure and sales to the US, said Fitch Ratings.

Vietnam has its banking sector outlook moved to neutral from improving. Whilst Vietnam has the highest decree of export exposure to the US market than any economy in APAC, likely reduction of lending rates, and possible loan relief and forbearance, may partially offset the pressure on lending yields and provisioning.

“[Vietnam’s] softer economic outlook is also likely to result in higher credit costs, leading to slower – albeit still solid – profit growth for the year,” Fitch Ratings said.

“[The] 2025 system loan growth quota is 16% and could increase further. This, together with possible loan relief and forbearance, may partially offset the pressure on lending yields and provisioning needs, and suggests that non-performing loan rates may rise only moderately,” it added.

Vietnamese authorities could also persuade banks to reduce lending rates as part of their efforts to support economic activity under a higher tariff scenario, weighing on their net interest margins (NIM), Fitch said.

China and Hong Kong maintained their “deteriorating” outlook at the beginning of 2025.

“The latter outlook also reflects our view that Hong Kong will see the largest rise in non-performing loans in APAC in 2025, due to a lingering property sector malaise. Both systems face subdued loan demand compared to historical averages,” Fitch Ratings said.

Meanwhile, Fitch maintained its maintain the outlook on China’s banking sector in part due to government policies likely weighing on profitability, and as banks experience asset quality pressure from a weaker economy and its property sector.