Credit losses for Asia-Pacific banks could surge by about $180 billion over the next two years under a downward scenario of a prolonged war in the Middle East, S&P Global Ratings said in a Wednesday release.
Total biennial credit losses could hit $910 billion over 2026 and 2027 under this scenario, compared with $730 billion under S&P's base case.
The rise in credit losses to total loans would hit Vietnam, Indonesia, and India the most under this scenario, S&P said.
Under S&P's base case, banks will feel a weaker impact from the war since direct exposures to the Middle East are low and indirect ones are manageable.
In a downward scenario, banks will likely be hit by secondary effects on the household, corporate, and government sectors, credit analyst Gavin Gunning said.
The impact will be felt more by banks with sizable exposures to susceptible corporate sectors such as airlines, energy, chemicals, and transportation.
However, S&P expects bank buffers to be resilient at current rating levels under a downside case.
Of more than 400 S&P-rated financial institutions in the region, 92% have ratings with a stable outlook, while only 2.9% are negative.