Fitch Ratings has released a new report indicating that most banks in the Asia-Pacific (APAC) region are expected to maintain stable profitability in 2026, as regional monetary easing cycles approach their end. The report suggests that net interest margins (NIMs) will likely decline only slightly across APAC, leading to a manageable impact on operating profit relative to risk-weighted assets in the short term. However, the extent and timing of margin compression will vary by market.
In most markets, loan yields are anticipated to decrease more rapidly than funding costs, which will lead to a modest compression of NIMs. Japan stands out as an exception, where gradual monetary normalization is expected to enhance NIMs and bolster profitability, supporting an ‘improving’ sector outlook for 2026.
Despite movements in interest rates, uncertainty surrounding credit costs and macroeconomic challenges continue to pose issues in several markets, including Taiwan, Hong Kong, China, and Thailand, where a ‘deteriorating’ sector outlook is maintained. Additionally, rising competition, regulatory and conduct risks, and the normalization of fee and trading income in some markets could introduce further earnings variability within individual banking systems and across APAC.
In many emerging markets, strong loan growth—particularly in India, Vietnam, the Philippines, and Indonesia—remains crucial for sustaining profitability. Meanwhile, banks in developed markets are adopting differentiated strategies to improve risk-adjusted profitability, focusing on corporate lending, selective overseas expansion, and wealth management services.
Generally, APAC banks’ earnings and profitability scores are positioned below their Viability Ratings (VRs), reflecting high banking penetration, competitive pressures, and regulatory pricing constraints in certain jurisdictions. Changes to near-term scores and the impact on VRs are expected to be limited, given the steady performance prospects.
The report, “Asia-Pacific Banks: Q&A on Earnings and Profitability,” is available for further details.
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