The corporate lending market in the Asian region is expected to continue to face weak conditions throughout the second half of this year as the conflict in the Middle East, especially the war involving Iran, undermines the confidence of companies and financial institutions.
Economic and geopolitical uncertainties have caused many companies to postpone investments and business expansion plans, thus reducing demand for new financing.
According to Bloomberg data, the amount of loans in the US dollar, euro and yen currencies in the Asia-Pacific region excluding Japan fell by 15% in the first half of this year to US$69 billion.
This is the weakest performance for the first six months in 16 years. In addition to the slowing demand, banks are also taking longer to approve financing as they are now assessing risks more carefully.
Analysts also explained that the flow of funds from the Middle East to Asia is decreasing as banks in the region focus on their respective domestic markets.
At the same time, several other factors such as the slowdown in the real estate sector in China, the Indonesian government's control measures on businesses as well as rising oil prices and weakening currencies in several countries also put pressure on lending activities in Asia.
While the overall situation remains challenging, there are several sectors that continue to record strong financing demand.
Among them is the construction of data centers, which is driven by the increased use of artificial intelligence (AI) technology and cloud services.
Several large projects in Malaysia, Singapore and Australia have successfully secured financing worth billions of dollars, but the cost of borrowing for this sector has also increased due to high demand for capital.
Overall, banks expect lending activities in Asia to remain slow until economic and geopolitical uncertainties begin to subside.
Although financial institutions are still willing to offer financing, companies are now more cautious in making investment decisions.
This situation indicates that business confidence has not yet fully recovered and is expected to continue to affect economic growth and corporate activities in the Asian region in the near term.
