The latest round of increase in US import tariffs is putting strain on export-heavy Asian economies, with their banking sectors likely to feel the greatest pressure.
· High export reliance leaves banks vulnerable in three countries
· Garment sector decline adds to banking stress in Bangladesh
· Regional policy easing may soften the blow
As the US increases import tariffs on trading partners, the banking systems of Vietnam, Thailand and Bangladesh are preparing for increased credit risks. With export-dependent economies,these countries s may experience a slowdown that may stifle loan growth, degrade asset quality and test banking stability.
Export exposure magnifies SME risk
Vietnamese and Thai banks are particularly vulnerable to SMEs that account for 20% of loan exposures. These are typically part of export-oriented supply chains and lack the buffer against abrupt external shocks. Banks in Bangladesh have lower direct exposure to SMEs but are vulnerable to the ready-made garment (RMG) sector that makes up over 85% of overall exports. The possible decline in the RMG sector due to supply chain problems will affect the asset quality of banks, particularly in loans tied to export manufacturing.
Policy moves and regional resilience
Though banks in India, Japan, Korea and China are insulated because of economic diversity or reduced export exposure to the US, sectors that are specifically export-oriented like automobile , steel and chemical industries are expected to be affected by higher tariffs . Governments have intervened.Japan, for instance has introduced assistance to its auto makers. Regional central banks could also refocus monetary policy, with interest reductions or loan restructuring programmes aimed at cushioning banks from economic shocks. While bigger companies can ride out the decline in revenues from US-bound exports, the ripple effect through SMEs and key sectors poses a major threat to regional financial stability.