APAC financial firms brace for Middle East long-term effects: S&P

Losses hinge on whether the Strait of Hormuz reopens by end May 2026.

Geopolitical spillovers from the Middle East have emerged as the primary credit risk for financial institutions across Asia-Pacific (APAC). 

According to S&P Global Ratings’ "APAC Financial Institutions 2Q 2026 Monitor: War, Nonbank Finance, And AI Are On The Radar," analysts warn that whilst the current impact is manageable, a prolonged conflict could severely strain the sector.  

Under a downside scenario involving a protracted war, credit losses for APAC banks could surge by 25%, amounting to an additional $180b in losses. 

China would bear the heaviest burden due to its scale, accounting for roughly $130b of that total. Other markets, specifically Vietnam, Indonesia, and India, would see a more pronounced rise in credit losses relative to the size of their total loan books.  

Despite these figures, S&P Global Ratings suggests the region remains resilient. 

Gavin Gunning, APAC sector lead, noted that most banks have the financial buffers to absorb these pressures at current rating levels, provided an agreement to unblock the Strait of Hormuz is reached by the end of May 2026.  

Whilst bank funding remains the dominant force in APAC, global concerns regarding fund finance—particularly in the US software sector—keep this issue on the risk radar.  

Artificial intelligence is expected to influence credit standings over the next one to five years. 

Whilst large, systemically important banks are well-positioned to use their massive IT budgets to capture revenue benefits and cost efficiencies, the impact across smaller financial services providers is expected to be uneven.