Middle East conflict threatens APAC banks with $180b losses

S&P says 92% of regional lenders still hold stable outlooks despite growing uncertainty.

Asia-Pacific banks remain in reasonably good financial condition despite ongoing geopolitical tensions and persistent inflation.

Ratings agency, S&P Global Ratings said the biggest risk facing banks in the region is the potential spillover from the conflict in the Middle East. 

Whilst APAC banks have limited direct exposure to the region, indirect economic effects remain manageable, although risks are increasing in some markets.

"Spillover from the Middle East war is the greatest risk for APAC banks. The latter have low direct exposure to the Middle East, and indirect economic exposures are currently manageable--though rising for some markets," said Gavin Gunning, sector lead for Financial Institution Ratings at S&P Global Ratings.

The findings were published in S&P Global Ratings' report, Global Banking Outlook 2026—Midyear Update: Asia-Pacific.

S&P said 92% of APAC bank ratings have stable outlooks, reflecting its expectation that ratings will remain broadly unchanged over the next 12 to 24 months.

The agency said most banks have sufficient capacity to absorb pressures related to the conflict at their current rating levels. 

However, in its downside scenario, credit losses at APAC banks could increase by an additional $180b if the Middle East conflict continues.

The report also identified technological change, including AI-enabled cyber risks, as another challenge for banks. S&P assessed this risk as medium.

According to the agency, the region's banking sector continues to benefit from strong and transparent regulatory frameworks, which support its overall resilience.