Asian banks risk weaker lending as rate hikes bite

Pressure could persist into 2027 because monetary policy changes take time to affect financing.

Higher interest rates in several emerging Asian banking markets are expected to slow credit growth by the end of 2027, according to S&P Global's July 2026 Banking Risk Monthly Outlook.

Central banks in Indonesia, Pakistan, the Philippines and Sri Lanka have raised interest rates since February 2026.

The report said the impact of these increases, combined with higher energy costs, is likely to weigh on lending as higher borrowing costs are passed through to households and businesses.

Credit growth in these markets is expected to weaken towards the end of 2026 compared with the trajectory before the US-Israel-Iran war.

In some countries, the effect could extend into 2027 because changes in interest rates can take time to feed through to bank lending.

The report also highlighted developments in other emerging markets. In Serbia, an order capping interest rates is due to expire in September 2026. 

The expectation that the cap will end is likely to support credit growth before it expires.
Argentinian banks, meanwhile, are expected to continue increasing their exposure to the private sector. 

In the Gulf, central banks in Gulf Cooperation Council countries are expected to continue providing measures aimed at supporting economic activity in the coming months.

The Banking Risk Monthly Outlook: July 2026, published on 7 July, was written by Alyssa Grzelak, Alejandro DuranCarrete, Natasha McSwiggan and Pedram Moezzi.