Escalating US tariffs could destabilize Fitch Ratings' generally stable outlook for most Asia Pacific banking systems, according to a Wednesday release.

The rating agency currently has neutral outlooks for the banking sectors in South Korea, Taiwan, and Thailand, although these could be downgraded if US tariffs track above 10% or under a worse-than-estimated impact on their economic growth.

Greater, country-targeted reciprocal tariffs or increased duties on key sectors like electronics and semiconductors could lead to this deterioration, Fitch said.

Moreover, higher tariffs would exacerbate Fitch's already negative outlooks for the banking sectors in China and Hong Kong, as the mainland's economic support measures hit profitability and Hong Kong's persistent property slump causes bad loans to rise.

The rating agency could also revise Vietnam's improving banking sector outlook to neutral under a greater adverse outcome from the trade war, especially with the country's significant export ties with the US market.

The ultimate impact of the trade conflict will hinge on the tariffs' ultimate results, their economic consequences, banks' exposure to at-risk industries, and potential shifts in fiscal, monetary, or credit regimes, Fitch said.