KB, Shinhan, Hana hit by economic downturn in Southeast Asia amid Trump tariff uncertainties

From left are the headquarters of Shinhan, Woori, KB Kookmin and Hana financial groups. Korea Times file

Major Korean banks are facing growing uncertainties over their businesses in Southeast Asia as the region has been weighed down by years of stagnant economy and worsening financial market soundness amid U.S. President Donald Trump's global tariff war, market watchers said Thursday.

Four major commercial lenders — KB Kookmin, Shinhan, Hana and Woori — have a combined 26 percent of overseas business exposure in Southeast Asia.

Vietnam and Indonesia top the list with 7.1 percent exposures each, followed by Singapore at 6.7 percent and Cambodia at 4.7 percent.

Over the past decade, the number of their combined branches increased to 65, up 2.5-fold from 25. Their combined assets are also said to have surged by more than six times.

On Wednesday (local time) Trump paused his threatened "reciprocal" tariffs against most countries for 90 days.

“The Trump tariff policies have been delayed, but the last-minute measure is far from a guarantee of stable business conditions in the weeks or months to come,” a KB Kookmin official said.

The implementation of the high tariffs against the region will translate into an immediate economic shock for businesses operating there, with the banks’ lending profile coming under direct threat.

The Trump administration’s reciprocal tariffs were 49 percent for Cambodia, followed by Vietnam at 46 percent, Thailand at 36 percent and Indonesia at 32 percent.

The 90-day delay was granted to all of them at the last minute, but the prospect of high tariffs lingers.

“The high tariffs on the countries is a strategic U.S. move to prevent China from bypassing the trade restrictions,” a Woori official said. “Many Chinese companies shifted production to those countries to export their goods to the U.S. without the high tariff applied. The Southeast Asian nations will remain under constant threat of tariffs and their aftershocks for some time.”

U.S. President Donald Trump delivers remarks on tariffs in the Rose Garden at the White House in Washington, April 2. Reuters-Yonhap

The local lenders are also facing concerns over rising nonperforming loan (NPL) ratios in the region.

The bad loans are when borrowers fail to pay interest for about three months or longer and are therefore considered unlikely to pay off their loan.

According to a report by Hana Institute of Finance, the ratio rose to 4.6 percent in Vietnam in the first half of 2023, up from the 1 percent range in 2021.

The sharp increase was driven by the COVID-19 pandemic leading to anemic housing demand whereby construction and real estate firms failed to fund their projects due in part to rapidly soaring borrowing costs.

The ratio came to 6.3 percent in Cambodia in the first half of last year, up from 4 percent in 2023. This was a further increase from 3.1 percent in 2022.

KB Kookmin has branches in Vietnam, India and Singapore, and has corporate entities in Myanmar, Indonesia and Cambodia.

Shinhan has expanded businesses in Vietnam, Indonesia and India, while Hana is focusing on Vietnam and Indonesia.

Meanwhile, Vietnam’s economy is forecast to grow at 6.6 percent this year, slower than 7.1 percent growth last year, according to the Asian Development Bank (ADB)’s flagship annual economic publication released April 9.

The evolving global economic environment, significantly affected by geopolitical tensions and the recent tariff-related announcements by the US, is posing significant challenges for economies dependent on export-driven manufacturing, it added.

As for Cambodia, the growth rate will be 6.1 percent this year, the ADB said.

The bank said downside risks to the outlook have increased due to global uncertainties, including trade policy in the United States.

Cambodian Ministry of Economy and Finance anticipates a growth rate of 6.6 percent for 2024.