FINANCING conditions across Asia-Pacific could deteriorate if the war in the Middle East continues, S&P Global Ratings said.
In its latest quarterly credit conditions report, the debt watcher noted that geopolitical risks remained elevated and could weigh on capital flows and funding access, particularly for lower-rated borrowers.
While financial conditions are still broadly supportive, S&P warned that prolonged uncertainty could shift investor sentiment and tighten liquidity.
“A prolonged war could exacerbate economic and credit repercussions in Asia-Pacific,” S&P said.
“This, alongside trade tensions and policy uncertainty, could upend financing conditions and drive large shifts in capital markets, raising borrowing costs,” it added.
The agency said a deterioration in market sentiment could also result in wider credit spreads, weaker currencies and capital outflows, which would make it more expensive for corporations and governments to access funding.
These risks were said to be particularly relevant for emerging markets that rely heavily on external financing.
S&P noted that volatility in global markets could intensify if the Middle East conflict disrupts energy supply routes, adding to inflationary pressure and complicating monetary policy decisions. Central banks may be forced to keep interest rates higher for longer, which would further tighten financing conditions.
“Global central banks will react depending on the sequence or weight of these effects,” it said.
“These sensitivities run high among Asia-Pacific central banks given the region’s net energy importing status, and its dependence on oil going through the Strait of Hormuz,” S&P added.
It stressed that higher borrowing costs could weigh on corporate balance sheets, especially for firms with significant refinancing needs over the next 12 months.
Companies in cyclical sectors and those with weaker credit profiles were seen as more “vulnerable” to a sudden shift in financing conditions.
The ratings agency added that tighter funding access could also dampen investment and slow economic activity, further weakening credit metrics. Reduced investor appetite for riskier assets may also limit bond issuance and increase reliance on bank lending.
It warned that downside risks were rising, particularly if geopolitical tensions persist or broaden.
“Downside risks to credit conditions remain elevated,” S&P said.
While policymakers in the region still have room to respond, the ratings agency said a prolonged period of market volatility would test resilience and could lead to more cautious lending and investment decisions.
