APAC Banks: Korean banks lead J.P. Morgan's APAC preferences in the new rate-hike cycle

Overview

This regional banking strategy report assesses how a renewed APAC rate-hike cycle could affect bank margins, loan demand, credit quality and shareholder returns through 2027. J.P. Morgan expects generally supportive growth and manageable asset-quality pressure in the preferred markets, with Korea its highest-conviction market.

Core views

J.P. Morgan expects nine of the 13 APAC economies it covers—Korea, Japan, India, the Philippines, Singapore, Malaysia, Hong Kong, Indonesia and Thailand—to have higher policy rates by end-2027. Japan is expected to see the largest increase, with its policy rate reaching 2.25% by end-2027, while Korea and Thailand are expected to add 75bp each. China is the principal counterexample: the report expects two 10bp cuts by 2027. Australia raised rates by 25bp on 29 September but is expected to cut 25bp in 3Q27. The report frames the cycle as largely growth-led, supported by the technology and AI-capex boom, rather than solely as a restrictive macro shock. The direct earnings effect depends on loan and deposit repricing. Based on J.P. Morgan estimates, every 25bp hike raises APAC banks' NIM by an average 3bp and earnings by 2%. Thailand has the highest NIM sensitivity, at 7bp per 25bp move, aided by low deposit pass-through and a high CASA ratio. Japanese banks have the strongest earnings sensitivity: about 3% for megabanks and 6% for regional banks per 25bp hike. Vietnam and Indonesia are less favorable because deposit rates reprice at least as quickly as, or faster than, loan rates. Australia has limited near-term benefit because hedging delays the impact of higher rates by three to five years, and J.P. Morgan expects a 2027 rate cut. The report argues that loan growth and credit quality should remain broadly resilient where growth is strong. AI-related capital expenditure is seen as relatively rate-insensitive because corporates begin with healthy balance sheets and historically high margins; this supports credit creation in Taiwan, Korea and, to a lesser extent, Japan. J.P. Morgan compares loan growth with nominal GDP growth and concludes that downside to loan growth is limited if nominal growth holds. Korea and Thailand are projected to have loan growth below nominal GDP growth in 2026-27, unlike their long-run pattern, reducing concerns about excessive credit expansion. Taiwan could see upside to both GDP and loan growth if the technology boom persists, whereas selected Indian banks may face loan-growth downside because projected loan growth remains roughly 5% above nominal GDP growth versus a long-run gap of roughly 1%. Asset-quality risks are considered manageable in the preferred North Asian markets. Japan's corporate interest-coverage ratio was 60x in 2025, compared with an APAC average of 13x, while household leverage was relatively low at 61%; J.P. Morgan therefore expects only some increase in credit costs despite an unusual pace of tightening. Korea's household leverage fell from 99% in 2021 to 89% in 2025, and stronger corporate earnings plus pre-emptive provisioning are viewed as mitigating factors. Taiwan is judged particularly resilient because of strong interest coverage, NPL coverage above 800%, and a supportive macro setting. Hong Kong, Singapore, Taiwan and Korea also screen as relatively resilient on fiscal and external-balance measures. Korean banks are the report's top regional picks. J.P. Morgan favors KB Financial Group, Shinhan Financial Group and Hana Financial Group because it expects NIM expansion, a favorable macro backdrop, resilient asset quality, low valuations and attractive total returns. The preference for the Big Three reflects their lower SME exposure than regional banks. The key downside is potential earnings or capital pressure from mark-to-market losses on bond investments held in FVTPL and FVOCI portfolios as bond yields rise. Outside Korea, the report favors selected banks in Taiwan, Japan, Hong Kong and Thailand. Taiwan could benefit from stronger growth and rate expectations tied to the technology boom; its banks can also gain swap income from a wider USD-TWD interest-rate differential. A 25bp US rate hike could, on a pro forma basis, increase swap revenue by about 11%, adding 0.2-1.7% to operating revenue, all else equal. J.P. Morgan identifies Sinopac for potential swap-revenue upside and KGI for robust brokerage contribution, although Taiwan valuations are considered richer than Korea's. In Hong Kong and Singapore, higher rates and wealth growth are supportive, but Hong Kong valuations are considered less demanding. BOCHK and Standard Chartered are preferred; HSBC's structural hedges have reduced its rate sensitivity. BOCHK's 23.8% CET1 ratio is seen as cushioning its sizable FVOCI exposure. Japan's expected 100bp of rate hikes is NIM-accretive, but deposit competition may cap ROE expansion for smaller banks. J.P. Morgan therefore favors domestic banks with strong deposit franchises, including Resona, and likes Mizuho Financial Group for its expected higher ROE, supported by its focus on large corporate business in Japan and abroad. It would avoid SBI Shinsei because it pays an above-average deposit yield. In ASEAN, Thai banks could gain NIM and earnings upside from 75bp of expected hikes and attractive total returns; KBank is preferred, while SCB is avoided on asset-quality concerns. The report is selective in China and India. It prefers China SOE banks, specifically Bank of China and China Construction Bank, as a hedge against the technology trade in a low-rate environment, while avoiding joint-stock banks. In India, J.P. Morgan prefers high-quality private bank ICICI and is very selective on NBFCs, preferring Bajaj Finance, because higher oil prices, tighter global money conditions and potential rate hikes could worsen asset quality. It flags South Asia, especially Indonesia, India and the Philippines, as more vulnerable because of relatively weaker fiscal positions and potential increases in credit costs. The key regional avoids are Australia, Indonesia, the Philippines and Vietnam. Australian banks are viewed as expensive relative to APAC peers, with reduced NIM sensitivity from hedging and greater credit-risk vulnerability due to comparatively low corporate and household interest coverage. J.P. Morgan specifically avoids CBA and Westpac on valuation and NAB on higher SME exposure. It also avoids Bank Central Asia in Indonesia, Bank of the Philippine Islands in the Philippines, and VPBank in Vietnam. For India, Vietnam, the Philippines and Australia, average total return is below the 10-year Treasury yield, so total return does not provide a sufficient defense in the report's assessment. Indonesia's high nominal shareholder return is also discounted because FX, asset-quality and growth uncertainty could threaten dividend stability.

Analysis framework

J.P. Morgan first maps policy-rate forecasts across 13 APAC markets, then estimates the NIM and earnings effect of a 25bp hike using published or company-disclosed sensitivities and assumptions on loan, deposit and other interest-bearing asset pass-through. It then tests whether growth and loan demand can withstand higher rates by comparing loan growth with nominal GDP, assesses credit vulnerability through corporate and household debt-service capacity, fiscal and FX indicators, and evaluates market preferences using valuation, expected ROE and total-return comparisons.

Methodology notes

• Industry AnalysisVolume-price decomposition

  Rate pass-through analysis for loans, deposits and other interest-bearing assets

  The report estimates how a 25bp policy-rate move changes bank margins and earnings by examining how quickly asset yields and funding costs reprice in each market.

• Financial-sector metricsNet Interest Margin (NIM) Analysis

  NIM and earnings sensitivity to policy-rate changes

  NIM sensitivity is the central mechanism linking policy tightening to bank profitability; the report distinguishes markets with favorable deposit pricing from those with high funding pass-through.

• Valuation methodsPB valuation

  2027E price-to-book and ROE comparisons

  The report compares bank valuations alongside forecast ROE and total shareholder return to identify markets where expected profitability is more attractively priced.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• KB Financial Group, Shinhan Financial Group, Hana Financial Group

  Top Korean bank picks in the rate-hike cycle

  Strengths

  Expected NIM expansion, resilient asset quality, supportive macro conditions, low valuations and attractive total returns; lower SME exposure than regional banks.

  Weaknesses

  Potential sensitivity to bond valuation losses.

  Comparison

  Preferred over Korean regional banks.

  Risks

  FVTPL and FVOCI bond-portfolio valuation losses could pressure earnings or capital.

• Sinopac

  Preferred Taiwan bank

  Strengths

  Potential upside from swap revenue as the USD-TWD rate differential widens.

  Weaknesses

  Taiwan bank valuations appear rich versus Korean banks.

  Comparison

  Taiwan is supported by the technology boom but is less attractively valued than Korea.

  Risks

  Upside depends on continued technology-driven growth and favorable rate differentials.

• KGI Financial Holding

  Preferred Taiwan financial company

  Strengths

  Robust brokerage contribution.

  Weaknesses

  Taiwan valuations appear rich versus Korea.

  Comparison

  Included among preferred Taiwan names.

• BOCHK, Standard Chartered

  Preferred Hong Kong banks

  Strengths

  Potential support from higher rates, wealth growth and less demanding Hong Kong valuations.

  Weaknesses

  Exposure to rising bond yields through investment portfolios.

  Comparison

  Hong Kong valuations are viewed as less demanding than Singapore's.

  Risks

  FVTPL/FVOCI valuation losses; HSBC has reduced rate sensitivity through structural hedges.

• Resona Holdings, Mizuho Financial Group

  Preferred Japanese banks

  Strengths

  Resona has a strong domestic deposit franchise; Mizuho is expected to have higher ROE because of its large-corporate focus in Japan and abroad.

  Weaknesses

  Deposit competition could constrain ROE expansion, especially for smaller banks.

  Comparison

  Preferred over SBI Shinsei.

  Risks

  Higher deposit competition in the rate-hike environment.

• Kasikornbank

  Preferred Thai bank

  Strengths

  Potential NIM and earnings upside from expected rate hikes and relatively attractive total returns.

  Comparison

  Preferred over SCB.

• Bank of China, China Construction Bank

  Preferred China SOE banks

  Strengths

  Viewed as a hedge against the technology trade in a low-rate environment.

  Weaknesses

  Domestic policy rates are expected to decline.

  Comparison

  Preferred over Chinese joint-stock banks.

  Risks

  Potential domestic rate cuts.

• ICICI Bank, Bajaj Finance

  Selective India preferences

  Strengths

  ICICI is viewed as a high-quality private bank; Bajaj Finance is the preferred NBFC.

  Weaknesses

  Higher rates and weaker macro conditions can pressure asset quality.

  Comparison

  Preferred over lower-quality private banks and more broadly over NBFCs.

  Risks

  Higher oil, tighter global liquidity and potential asset-quality deterioration.

Key data

• APAC markets expected to hike rates9 of 13Expected to have higher policy rates by end-2027.
• Average impact of a 25bp rate hike+3bp NIM; +2% earningsJ.P. Morgan estimate across APAC banks.
• Japan policy rate forecast2.25%Expected by end-2027, representing 100bp of additional hikes from the latest level.
• Thailand NIM sensitivity+7bpEstimated FY27E NIM impact from every 25bp rate hike.
• Japan corporate interest coverage60x2025 level, versus an APAC average of 13x.
• Korea household leverage89%Down from 99% in 2021.
• Taiwan NPL coverage>800%Cited as a factor supporting low expected NPL formation.
• BOCHK CET1 ratio23.8%Seen as a buffer against valuation losses on its sizable FVOCI portfolio.

Impact & implications

The report expects a favorable rate-growth mix to support margins and earnings in Korea, Japan, Thailand and selected Hong Kong, Singapore and Taiwan banks. It emphasizes that higher rates are not uniformly beneficial: pricing structure, deposit competition, hedge positions, credit resilience and valuation determine which markets and banks can convert tightening into returns.

Risks

• Rising bond yields could create FVTPL earnings losses or FVOCI capital pressure, particularly for HSBC, Standard Chartered, Korean megabanks and selected Taiwanese banks.
• Deposit competition could intensify in Japan and limit ROE expansion, particularly for smaller banks.
• Higher rates and energy costs could increase credit costs across South Asian banks, with India, Indonesia and the Philippines viewed as more vulnerable.
• Australian banks face valuation risk, limited near-term margin benefit from hedging and potentially higher asset-quality pressure.
• FX, growth and asset-quality uncertainty could undermine dividend stability for Indonesian banks.

What to watch

• The pace of expected policy-rate hikes, especially Japan's path to 2.25% by end-2027 and further tightening in Korea and Thailand.
• Whether AI capex continues to support Taiwan and Korea's growth and loan demand.
• Loan growth relative to nominal GDP, particularly in India where projected loan growth remains above its long-run relationship with GDP.
• Credit-cost trends, provision buffers and interest-coverage conditions across South Asia.
• Bond-yield moves and disclosures on FVTPL and FVOCI holdings.
• Deposit competition and structural hedging effects on Japanese and Australian bank margins.