If the 25% reciprocal tariff imposed by the U.S. government, which was previously suspended, comes into reality, Korean commercial banks will be stuck in a double bind. As the banks' net interest margin (NIM) is already decreasing amid a cycle of interest rate cuts, the burden of risk expenses is also increasing due to an economic slowdown.
Lena Kwak, a senior researcher at Bloomberg Intelligence, said in an interview with ChosunBiz, "The imposition of reciprocal tariffs by the U.S. will lead to a slowdown in the Korean economy, which will in turn result in a deterioration of bank soundness."
Kwak is an analyst who publishes financial market analysis reports on Korea, Singapore, India, and Southeast Asia at Bloomberg Intelligence. Bloomberg Intelligence, established by Bloomberg in 2006, is a global market research organization with over 500 experts in 12 offices across 8 countries. Analysts analyze more than 2,000 global corporations and distribute over 600 processed data through Bloomberg Terminal devices.
Kwak's recent concern is the impact of Donald Trump's administration policies on the Korean financial market. In particular, he believes that the monetary and tariff policies of the Trump administration will have a significant effect on the Korean economy and financial institutions, closely monitoring market trends. Currently, the Trump administration is pressuring Korea to appreciate the won (decrease the exchange rate) to resolve trade deficits. The won-dollar exchange rate, which had been maintained in the 1380 won range at the beginning of last month, dropped to 1347.1 won during intraday trading on the 31st, marking the first time it fell to the 1340 won range since October of last year.
Kwak likened the appreciation of the won to a double-edged sword. He stated, "The appreciation of the won raises the prices of export goods produced in Korea, deteriorating the profitability of exporting corporations and reducing demand for trade financing," adding, "However, if the won appreciates, it has the effect of reducing foreign currency liability costs from the banks' perspective." He continued, "Banks can respond to the appreciation of the won by diversifying their loan portfolios and utilizing foreign exchange hedging tools."
The imposition of reciprocal tariffs also casts a shadow over the Korean economy. On the upcoming 8th, the 25% reciprocal tariff that the U.S. government had suspended will come into effect. U.S. companies are already reducing imports of Korean products in preparation for the tariff. According to the Ministry of Trade, Industry and Energy, exports to the U.S. in June amounted to $11.24 billion (approximately 15.2313 trillion won), down 0.5% compared to the previous year. In particular, as exports of automobiles, which are a key item, have contracted, the overall exports to the U.S. are believed to have been adversely affected.
Kwak also assessed the declining trend of Korea's exports as a serious situation. He pointed out, "In a country like Korea that has built an export-driven economy, a reduction in trade leads to decreased production and employment as well as a reduction in corporate investment." He added, "A contraction in production can lead to a vicious cycle of decreased employment and income, and the contraction of domestic demand, which puts more pressure on corporations." He described the U.S. reciprocal tariffs as a trigger that "will increase the threshold for banks to lend to the trade industry and raise the proportion of safe loan assets."
In addition to external conditions, concerns have been raised about the structural vulnerabilities of domestic banks. In particular, Kwak noted that the loan structure is excessively reliant on the real estate market. He said, "Singapore's major banks, such as DBS, OCBC, and UOB, primarily focus on corporate loans, which directly correlates with the growth potential of trade-oriented countries, creating a virtuous cycle."
Kwak further explained, "Korean banks have an excessively large proportion of household loans that are centered on mortgage loans," adding, "This makes their profitability sensitive to real estate market cycles, and they become disconnected from the flow of real economy investments." In this case, if interest rates enter a downward stabilization phase, it will become difficult to increase interest income based on housing loans. Therefore, he analyzed that banks must secure stable revenue bases through strategies such as ▲fee-based revenue sources ▲digital transformation ▲diversification into overseas markets.
The goal that the financial sector must pursue with the launch of the Lee Jae-myung administration is to establish "trustworthiness." Kwak emphasized, "Since the new government took office, it has put forward 'co-prosperity finance' as its national policy. Financial institutions that proactively prepare countermeasures can establish policy trust," adding, "Whether they can alleviate the burden of regulations and the declining profitability under a sense of trust will ultimately determine the position of financial institutions."