APAC banks to absorb $500b new losses from Middle East & China risks

Slower growth in China and worsening property risks is amongst factors that can affect banks.

Banks in the Asia Pacific (APAC) region should be able to absorb key risks, including the impact of the Middle East war and property risks in China and Hong Kong, according to S&P Global Ratings.

APAC banks' credit losses globally are expected to increase by 10% to $500b, the ratings agency said in its Q2 2026 credit conditions report. However, S&P said that most banks should be able to manage the higher credit losses.

"Most banks' profitability, provisioning and capitalization buffers will cushion anticipated higher credit losses of 10% in 2026," Gavin Gunning, managing director for S&P Global Ratings, wrote in the report.

Two key risks are on the horizon: the Middle East war and China-related risks.

"There is a high degree of unpredictability around the duration and scale of the Middle East war, and its effect on economies and credit conditions. A longer or worse scenario will dampen investor sentiment, add volatility, disrupt financial markets and hurt banks," Gunning said.

Slower growth or other disruptions in China could hit Asian trading partners, and in turn banks.

"A worsening of property risks across markets that are under strain--most notably China and Hong Kong--would hit banks' asset quality," Gunning said.

Contagion effects hitting private credit in the U.S. and Europe could spill over onto Asia-Pacific, he warned.