Energy costs and rate hikes to squeeze Asia loan growth

Indonesia, Pakistan, the Philippines, and Sri Lanka have raised their interest rates since February.

Higher interest rates in some Asian markets will lead to lower loan growth by end-2027, said S&P Global Market Intelligence.

A double whammy of higher energy costs and higher interest rates will negatively affect credit growth, it warned in its banking risk monthly outlook published 7 July 2026.

Several markets, including Indonesia, Pakistan, the Philippines, and Sri Lanka have raised their interest rates since February 2026.

“The combined effect of higher energy costs and the higher interest rates will negatively impact credit growth compared to the pre-US/Israel-Iran war credit growth trajectory towards the end of 2026 and in some cases in 2027 when the transmission of the interest rate increase has been passed through,” S&P Global Market Intelligence said.

Sri Lanka will maintain its credit growth around the same level through 2027 and 2030, based on S&P’s estimates. The Philippines’ growth rate is also expected to remain at almost the same rate.

Pakistan’s credit growth is expected to reach its peak in 2027 then slow slightly, whilst Indonesia may reach its peak in 2029, it added.

Philippine bank loans rose 12.1% in May 2026, central bank data showed, although the country recorded a softer expansion in credit card and motor vehicle loans. 

Fitch Ratings separately warned that Philippine banks will face higher credit impairments and lower profitability in 2026.