The protectionist policies of U.S. President Donald Trump are likely to deteriorate the soundness of the financial industry and expand market volatility.
According to a report from the Korea Financial Research Institute on the 16th, titled "Implications of Strengthened Protectionism for the Domestic Banking Industry," a slowdown in exports due to global protectionism could lead to deteriorating performances of corporations and industries, causing the insolvency of vulnerable corporations and undermining the soundness of the financial industry. In particular, the spread of protectionism may significantly increase the volatility of the domestic financial market by changing risk preferences in the global financial markets and investment incentives by country.
Koo Bon-sung, a senior researcher at the Korea Financial Research Institute, noted that "the domestic banking industry needs to develop medium- to long-term response measures for future financial market conditions that may arise from structural changes in the real economy." He emphasized that banks should identify the ripple effects on individual banks' medium- to long-term financial performance based on stress scenarios and establish a response stance that can prevent systemic risks from accumulating.
Senior Researcher Koo specifically suggested the need to prepare scenarios for increased financial risks of key industries or major corporations and secure corresponding loss absorption capabilities, proposing that forward-looking provisions be policy-driven in connection with potential insolvency estimates that may arise from the expansion and deepening of protectionism.
He added that domestic banks should proactively address unrealized losses related to real estate finance, such as household debt and project financing (PF), while conservatively managing these risks, and focus on securing highly liquid foreign currency assets in consideration of the impact of expanded protectionism on foreign currency demand.