Asia loan bankers brace for competition, thinner margins in 2026

[SINGAPORE] Loan bankers in Asia are bracing for an increasingly competitive market that is squeezing the returns they earn on lending, as they grapple with subdued syndicated deal flow.

Loan volumes denominated in US dollars, euros and yen – the so-called G3 currencies – in Asia-Pacific outside Japan fell 6.7 per cent to a two-year low of US$189 billion in 2025 from a year earlier, according to Bloomberg-compiled data. Uncertainty around tariffs deterred some companies from new investments, while high US interest rates pushed others to delay US dollar borrowing or switch to local currency funding.

At the same time, Asia-Pacific ex-Japan bond sales grew 27 per cent last year to hit a four-year high of US$317 billion, according to Bloomberg-compiled data, further shifting financing away from loans.

This is all tilting the loan market in favour of borrowers. Strong demand from lenders, coupled with the region’s deep liquidity and the rise of private credit, has enabled borrowers to secure increasingly attractive terms, with margins tightening even in higher-yielding sectors such as digital infrastructure.

With demand from banks for loans continuing to be greater than supply, “the expectation is that we will continue to see further pricing compression, particularly for strong borrowers in the region”, said Samuel Tan, head of the loan financing group at United Overseas Bank.

But “the rate of compression should begin to slow down” as banks contend with internal cost of funds’ constraints, he said.

Asia’s abundant liquidity also drew European borrowers, including Dutch industrial builder CTP NV and French car leasing firm Ayvens, as well as repeat names from the Middle East. Borrowers from the Gulf raised a record US$15.8 billion in syndicated loans across Asia-Pacific last year, according to Bloomberg-compiled data. The trend is likely to continue, with the United Arab Emirates and Saudi Arabia pursuing large-scale infrastructure projects.

European and the Middle Eastern borrowers have been “chasing more favourable pricing and terms than what they might be able to get in Western markets”, said Stephanie Vallance, head of acquisition finance and loan syndications for South-east Asia, India and the Middle East at Australia & New Zealand Banking Group. “For those transactions, we see quite strong participation from the Asian investor pool.”

Digital infrastructure boom

Surging demand to fund data centres globally is set to remain a major theme in 2026, driven by AI, cloud computing and digitalisation, loan bankers said. Jumbo deals, such as the US$3.8 billion facility backing the purchase of ST Telemedia Global Data Centres, will help boost volumes.

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But loan pricing for the sector has “compressed quite a bit” from early 2025, with margins for operating companies dropping from 270 to 280 basis points above the US benchmark to the mid-200s, said Birendra Baid, head of loan syndications for Asia-Pacific at Deutsche Bank. For Deutsche, some of the deals are “becoming a little bit uncomfortable from a risk-reward point of view”.

Banks are also targeting more deals from holding companies this year, as they can fetch higher margins of 4 to 5 per cent. Unlike operating company loans, where borrowers directly own and run data centres, holdco debt is raised by parent companies, often backed by private equity firms or infrastructure funds.

It’s an area where “private credit markets have been very supportive in financing”, said Alexis Postel-Vinay, Asia-Pacific head of loans and market financing syndicate at BNP Paribas. As a result, “coexistence of banks and private credit funds on the same transaction” will likely increase, he said.

Areas of activity

Australia’s loan market is set to remain robust this year, supported by refinancing, mergers and acquisitions (M&A), and competitive pricing. Volumes rose 13 per cent year on year to US$128 billion, making the country among the largest contributors to regional totals, according to Bloomberg-compiled data.

December, typically a quiet month, saw several major M&A transactions, including a A$4 billion (S$3.4 billion) acquisition of National Storage Reit and Sembcorp Industries’ A$6.5 billion purchase of Alinta Energy. All of this will likely bode well for loan volumes this year, bankers said.

Appetite from funds and banks for Australian corporate and leveraged loans will continue to grow this year, said Michael Rossiter, head of leveraged, acquisition and syndicated finance for HSBC Holdings in Australia and New Zealand.

“There will continue to be Asian distribution for reputable Australian companies,” said Scott Austin, head of loan capital markets Australia and project finance syndications, Asia-Pacific at Sumitomo Mitsui Banking.

In China, some borrowers are favouring renminbi loans, with onshore interest rates far below US levels. That trade will continue into the first half of the year because it’s unlikely US rates will come down dramatically, said Ashish Sharma, head of leveraged, acquisition and syndicated finance in Asia at HSBC.

In some instances, Chinese banks have also been able to offer longer tenors, said Sharma. “Both financial sponsors, as well as corporates, are taking advantage of that.” BLOOMBERG