Nonbank finance, AI and war top APAC financial institutions’ risks in 2026

A protracted war could raise their credit losses by 25% or $180b, S&P warned.

Non-bank finance, artificial intelligence (AI), and the Middle East or West Asia war are the greatest credit risks for Asia Pacific’s financial institutions in 2026, according to S&P Global Ratings.

Whilst APAC banks have lower direct exposure to the Middle East, a protracted war could raise credit losses by 25% or $180b, the ratings agency warned.

Most banks should still be able to absorb current pressures until the end of May.

“We believe that most banks have sufficient capacity to absorb related pressures at current rating levels, assuming an agreement to ease the effective blockage of the Strait of Hormuz will happen by the end of May,” said Gavin Gunning, the Asia-Pacific sector lead for financial institutions ratings at S&P Global Ratings.

A prolonged war will see credit losses rise in Vietnam, Indonesia, and India. China’s banking sector will account for the lion’s share, at $130b or so of additional estimated credit losses, given the sector’s large size.

“For these and other Asia-Pacific banking jurisdictions, however, we anticipate resilience at current rating levels due to financial buffers,” Gunning said.

The non-bank finance sector, and fund finance in particular, will remain a top investor concern in 2026.

“This is especially so for U.S. funds amid uncertainty around asset quality and valuations in the software sector,” Gunning said.

Meanwhile, AI is a profound development that will undoubtedly affect the credit-standing financial institutions in Asia-Pacific over the next one-to-five years. But the effects will vary, he said.

“Large systemically important Asia-Pacific banks have substantial information technology budgets and are well placed to leverage cost efficiencies and capture upside revenue benefits,” Gunning said.