The big Asean banks’ “solid” foreign exchange (forex) and interest rate management may shield their bonds from a possible volatility from a win by US President Donald Trump, says Bloomberg Intelligence’s credit research analyst Rena Kwok. Trump won this year’s presidential elections, becoming the US’s 47th president. This will also be Trump’s second term in the White House.
Trump’s re-election is believed to see renewed inflation, stickier interest rates and a stronger US dollar based on the policies he has proposed so far.
“The low share of unhedged foreign currency exposure as a portion of their capital and the modest size of their securities books should offer some resilience,” Kwok writes in a Nov 6 note.
In a Nov 1 note, Kwok said that capital impairment risks faced by major Asean banks due to a stronger US dollar could be contained given their “very modest” share of unhedged forex exposures.
“The conservative net open foreign exchange position (NOP) -- as measured by unhedged foreign-currency exposure versus total capital -- of most banking sectors in the Asean region reflects banks' relatively low risk appetite for uncovered forex exposures,” she wrote at the time.
Furthermore, the banks have adequate loan-loss risk buffers to protect against possible “loan slippages” from escalating geopolitical tensions or downside risks from possible heightened trade risks, she added.
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“Many lenders have made pre-emptive provisions over past few years amid macroeconomic challenges. Credit costs peaked in 2020 for most Asean banks during Covid, followed by a recovery and normalisation by 2022,” she wrote on Nov 1. “Still, the Thai banking sector's elevated credit costs may only fall gradually in 2025, as most lenders have made ample provisioning for potential restructured loans turning into nonperforming ones due to the nation's weak income recovery, structural challenges and elevated household debt, despite government stimulus.”
In the same note, Kwok added that the resilience of economies in the Asean region after the election hinges on the degree of trade tariffs imposed by the US.
“Clarity on this is needed to assess the impact on Asean economies' growth and monetary policies. Economies with lower trade exposure, like Indonesia and Philippines, may fare better on growth regardless of the tariff mix a Trump win might deliver,” she said.
“Our past analysis shows Asean growth could largely hold up overall in the specific combination of a 60% tariff on China plus a 10% universal tariff elsewhere. That's despite a noticeable hit to GDP in the US and China,” she added. “The impact on Asean GDP and consumer prices, based on a general equilibrium model, appears negligible after five to 10 years due to the offsetting effects of these measures.”
Should another US-China trade war happen, “connector” markets, a term coined by the International Monetary Fund (IMF), such as Vietnam and Indonesia, could see extra support for their currencies assuming they are not subjected to direct tariffs or sanctions from the major economies.
