S&P Global Ratings has warned that the banking sector in the Asia-Pacific region may face an additional $180 billion in credit losses due to the indirect consequences of the ongoing conflict in the Middle East. While the current base case suggests a more muted impact, a potential downside scenario involving surging oil prices and fractured supply chains could push cumulative credit losses to $910 billion over 2026 and 2027. This represents a significant increase from the $730 billion originally anticipated, primarily driven by secondary economic shifts rather than direct exposure to the conflict zone.
The vulnerability is particularly high for financial institutions with heavy lending ties to sensitive industries such as energy, chemicals, transportation, and aviation. Geographically, India, Indonesia, and Vietnam are expected to experience the most significant spikes in credit loss ratios relative to total loans. According to credit analyst Gavin Gunning, the risk is concentrated in how a prolonged conflict might degrade the financial health of households, corporations, and government entities, creating a ripple effect across the broader economy.
Despite these warnings, the regional banking industry maintains a high level of structural resilience. Approximately 92% of the more than 400 financial institutions rated by S&P in the Asia-Pacific region currently maintain a stable outlook. Even if the energy market sees Brent crude oil peak at $200 per barrel this April and average $185 throughout the second quarter of 2026, the agency believes that existing capital buffers will allow these banks to withstand the pressure of a downside scenario.
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