Asian loan market hits 16-year low in 1H

16 years — that’s how long it’s been since Asia’s loan market had a first half this bad. USD, EUR, and JPY loan issuance across Asia Pacific ex-Japan dropped 15% y-o-y to USD 69 bn in 1H 2026, the weakest first-half performance since 2010, according to Bloomberg data. The second half also looks no better.

The Iran war is the primary culprit. The conflict has stalled investment activity and pushed out financing timelines, with lenders applying more scrutiny to every transaction. “With increased uncertainty, there is a reduction in corporate confidence,” Andrew Ashman, head of Asia Pacific loan syndicate at Barclays, told the business information service. The M&A-driven issuance banks had expected hasn’t shown up, and the geopolitical drag looks set to last through year-end.

The Middle East liquidity channel is also narrowing. Middle Eastern banks are pulling back from offshore syndications and directing liquidity to their domestic markets — cutting off a funding source Asian borrowers have relied on for years. HSBC’s Ashish Sharma, head of leveraged and acquisition finance for Asia Pacific, expects the corridor to recover eventually — but not before conditions stabilize.

Some of that capital is landing in Australia. Loan volumes there fell around 10% in 1H, but an influx of Middle Eastern capital — redeployed as banks treat Australia as a safe haven — has intensified lender competition and compressed margins, Gavin Chappell, global head of acquisition finance and syndication at ANZ, told Bloomberg.

But it’s not just the war. China’s property slump is still weighing on credit demand, Indonesia’s regulatory tightening has cooled corporate appetite, and higher oil prices, paired with weaker currencies, have tightened conditions in markets like India.

Don’t expect the second half to look different. “The second-half volume may not be different from the first half purely because of macroeconomic reasons,” Birendra Baid, head of Asia Pacific loan syndication at Deutsche Bank, said. Still, with banks still willing to lend, pricing is expected to compress.

Where the money is going instead: With conventional volumes muted, capital is rotating toward higher-yielding pockets. Structured credit is picking up the slack, offering better returns than conventional corporate loans.

Data centers are the exception. Recent transactions include DayOne Data Centers Singapore doubling a MYR 15 bn facility, Blackstone-owned AirTrunk closing a USD 2.3 bn loan for a Malaysia project, while also seeking a USD 3 bn facility for a Sydney data center. Margins are rising too — a recent Malaysia transaction priced at 310 bps over SOFR, up from levels largely in the 200s over the past year, with bankers expecting another 20-50 bps of spread widening as further transactions come to market.

MARKETS THIS MORNING-

Asia-Pacific markets are down in early trading, with South Korea’s Kospi leading losses, down over 5%. Japan’s Nikkei is down almost 1%. Over on Wall Street, stocks are set to open flat with futures little changed.

THE CLOSING BELL-

The EGX30 rose 2.7% at yesterday’s close on turnover of EGP 12.2 bn (40.8% above the 90-day average). Local investors were the sole net buyers. The index is up 25.5% YTD.

In the green: E-finance (+9.0%), Fawry (+5.3%), and Raya Holding (+4.7%).

In the red: Orascom Construction (-2.3%), Qalaa Holdings (-1.4%), and AMOC (-1.2%).