Asia ex-China credit growth rises to the highest level in 18 years

Overview

This report focuses on the credit cycle in the Asia-Pacific region, with the core conclusion that bank credit growth in Asia ex-China has risen to its strongest range since the 2000s. The report argues that bank credit remains the most important source of external financing for Asian corporates because corporate bond and private credit markets are still underdeveloped; in emerging Asian economies, banks and non-bank financial companies account for more than 60% of funds flowing to the business sector. In contrast, China, constrained by a countercyclical policy stance and high debt levels, is using the window of strong exports to slow leverage expansion.

Core views

The report presents three main themes. First, AI and related digital infrastructure, energy, defense, and industrial supply chains are driving a multi-year rise in capital expenditure, which, together with export broadening, has significantly strengthened capital goods imports and nominal industrial production. Second, rising PPI inflation is increasing working capital loan demand across upstream and downstream companies. Third, non-tech capex and improving exports are supporting employment, which in turn is helping consumption and household credit demand recover. Regionally, India, Japan, Singapore, Hong Kong, Australia, and Taiwan are performing strongly; in Korea, large corporates have ample cash flow and therefore rely more on internal funds, Thailand's credit is weak, and Indonesia's loan improvement is driven more by policy support than by private-sector capex.

Analysis framework

The report uses a macro credit cycle analytical framework, cross-validating nominal and real credit growth, corporate loans, household loans, capital goods imports, export momentum, nominal industrial production, PPI inflation, employment, and consumption indicators, and then breaking down drivers and constraints by country and region.

Methodology notes

• Macro cycle analysisThree-factor framework for credit demand

  Capex, trade, and PPI inflation jointly explain accelerating credit demand

  The report attributes credit growth in Asia ex-China to investment financing demand driven by capex and trade expansion, working capital demand driven by PPI inflation, and the recovery of household credit demand following improved employment.

• Regional comparisonAsia ex-China versus China comparison

  Procyclical credit expansion coexists with countercyclical deleveraging

  The report analyzes credit expansion in Asia ex-China alongside the slowdown in leverage in China, emphasizing that China's policy is more inclined to withdraw stimulus and control debt growth during periods of strong exports.

• Financing structure analysisBank credit-led macro financing structure

  Banks and non-bank financial companies remain the main funding sources for Asia's business sector

  Because Asia's corporate bond and private credit markets are relatively underdeveloped, bank credit occupies a central position in corporate external financing, making credit growth highly explanatory for macro activity.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Banking system in Asia ex-China

  Directly benefits from expanding loan demand

  Strengths

  Bank credit remains the main channel of external financing for corporates, while both corporate loans and some household loans are improving simultaneously.

  Weaknesses

  The underdevelopment of corporate bond and private credit markets increases the importance of the banking system, but may also make the credit cycle more dependent on bank asset quality.

  Comparison

  Compared with China, credit in Asia ex-China is in a stronger phase of procyclical expansion.

  Risks

  A decline in PPI, slower exports, cooling capex, or rising credit costs could weaken loan growth.

• Corporate loans

  The core driver of this round of credit acceleration

  Strengths

  Capex, exports, supply chain rebuilding, and working capital demand jointly support corporate financing.

  Weaknesses

  In markets such as Korea, large corporates have ample cash flow and may rely more on retained earnings than on bank loans.

  Comparison

  Corporate loan growth is faster than household loan growth, reflecting that this cycle is mainly driven by industry and capex.

  Risks

  If global trade or non-tech capex weakens, corporate credit demand may decline.

• Household loans

  A lagging recovery but not the main driver

  Strengths

  Improving employment, recovering retail sales, and easing energy pressures help household credit demand rebound.

  Weaknesses

  Overall, it remains within the historical range, and some markets are constrained by real estate or regulation.

  Comparison

  The recovery in household loans is weaker than in corporate loans; in China, household loans are notably weak due to real estate and income pressures.

  Risks

  Falling housing prices, weak wage growth, poor consumer confidence, and regulatory caps may limit growth.

• China credit

  Overall deleveraging coexists with structural support

  Strengths

  Credit remains relatively strong in high-growth areas such as AI, energy, and frontier emerging manufacturing.

  Weaknesses

  Real estate-related loans, mortgages, and non-mortgage retail loans are weak, and growth in overall loans and total social financing is slowing.

  Comparison

  In contrast to the procyclical credit expansion in Asia ex-China, China is using the window of strong exports to reduce stimulus and debt growth.

  Risks

  A weak real estate market, deflationary pressure, and insufficient wage momentum may continue to weigh on household and traditional-sector credit.

Key data

• Nominal credit growth in Asia ex-China8.5%Y in May-26The highest level in 18 years.
• Real credit growth in Asia ex-China6.3%YAfter adjusting by the GDP deflator, it is also at an 18-year high.
• Capital goods import growth33%Y 3MMA in MayThe report says this is the highest since 2004 and uses it as a high-frequency indicator to track capex momentum.
• Asia nominal industrial production growth12.5%Y in MayReflects the strength of exports and capex, reaching an 18-year high.
• PPI inflation in Asia ex-China9.0%YRose to a 4-year high, driving working capital loan demand.
• Non-commodity PPI in Asia ex-China4.3%Rose to a 3.5-year high, showing price pressures spreading downstream.
• Share of debt securities in total debt of Asian non-financial corporates14% on averageOECD data, indicating that corporate financing still relies heavily on bank loans.
• Household loan growth6.6%Y in May-26Recovered from the 5.6% low in September 2025, but remains within the historical range.
• India corporate loan growth18.3%Y in MayThe highest since 2012 and an important source of India's strong credit growth.
• Japan overall loan growth7%YReached a new high in available data since 1999.
• Japan corporate loan growth8.4%Y in MayCorporate capex, supply chain rebuilding, and digital transformation support funding demand.
• Korea current account surplus9.1% of GDPThe highest since 1998, but credit growth remains soft, with household loans constrained by a 1.5% YoY growth cap.
• Australia overall loan growth8%Y in MayCorporate loans rose 9.5% YoY and household loans 6.7% YoY, but changes in the housing market and tax system may drag on subsequent growth.
• China overall loan growth5.1% in Jun-26Further slowed from 6.2% YoY in December 2025.
• China total social financing growth7.5%Over the same period, it fell from 8.5% YoY to 7.5%.

Impact & implications

If the report's view is correct, banks, corporate credit, and capex-related assets in Asia ex-China will continue to benefit from the investment cycle, trade expansion, and stronger industrial production; however, as lower oil prices cool PPI, nominal credit growth may moderate mildly. China's macro implications are different: overall credit growth is sluggish, with real estate and household loans under pressure, but credit related to policy-favored areas such as tech capex, AI, energy, and advanced manufacturing may remain relatively resilient.

Risks

• PPI inflation may decline as oil prices fall, which could lead to a natural slowdown in nominal credit growth.
• Weaker global export or capex momentum would reduce corporate loan and working capital demand.
• Changes in Australia's housing tax system, interest rates, and economic slowdown may depress home prices and, with a lag, drag on housing credit.
• Korea's cap on household loan growth and ample internal funding at large corporates may limit bank credit expansion.
• Indonesia's loan improvement relies more on policy support, and insufficient private-sector capex may make the growth difficult to sustain.
• Pressure on China's real estate sector, household income, and consumer confidence may continue to drag on household loans and total credit.

What to watch

• Whether nominal and real credit growth in Asia ex-China can continue to hold near 18-year highs.
• Whether capital goods imports, export broadening, and nominal industrial production can remain strong.
• Changes in PPI and non-commodity PPI, and their transmission to working capital loan demand.
• Whether the growth gap between corporate loans and household loans converges.
• Whether loan growth in India, Japan, Hong Kong, Singapore, Australia, and Taiwan can continue.
• Changes in the structure of credit growth in China loans and total social financing, real estate-related loans, and high-growth sectors such as AI and energy.