How Asia's financial sector is building resilience in the backdrop of volatility

Geopolitical fracture has been building over the past decade. From the first US-China trade war to COVID-related supply chain issues, and from Russia’s invasion of Ukraine to the ongoing conflicts in the Middle East, the world has seen a steady build-up of geopolitical stress. For Asian financial institutions, the Iran conflict has been a defining moment.

Asia’s banks and asset managers are being compelled to adapt fast. While some of that adaptation is defensive, some of it must also be opportunistic.

There are myriad issues to deal with and navigate. The IEA describes the Hormuz disruption as “the greatest threat to global energy security in history”. Brent prices remain elevated, impacting growth and investment flows, and food prices and economic activity more broadly. These developments are hitting energy-importing economies in Asia the hardest.

But for the banking sector, another challenge is that energy-price inflation erodes borrower quality, particularly for manufacturers and logistics firms with thin margins. As a result, their Gulf lending books face uncertainty and repayment risk. Asian and Chinese banks extended more than US$15 billion towards Gulf loans in 2025, which is a record and triple the previous year. Hong Kong, now the largest Asian lender to the GCC with US$58 billion in cross-border claims as of Q3 2025, has the most concentrated exposure. And because it operates partly through Hong Kong’s offshore lending infrastructure, China now accounts for 15% of all GCC syndicated loans in 2025, up from 6% in 2019.

Analysts at CreditSights have noted that even as core lending has remained relatively stable, the Iran conflict is weighing on Asian banks’ non-interest income.

Building redundancy

Tan Su Shan, CEO of DBS Bank, has been blunt about what the new operating environment demands of banks. Speaking on the sidelines of an event in April 2026, she told CNBC that the shocks of recent years—from the pandemic to tariffs to the Iran war—have forced institutions to rethink resilience across supply chains, payment systems and cybersecurity. Her message to the bank: “Prepare for the worst, hope for the best, but have that playbook ready.”

Asia’s major financial institutions are looking to respond. DBS Bank and OCBC, for example, have accelerated investment in multi-jurisdiction data infrastructure, reducing their reliance on single-node operations that could be frozen overnight by sanctions or conflict. Standard Chartered has gone further and embedded what it calls geopolitical sensing into its risk function, which allows it to stress-test lending books against political developments the way it once stress-tested them against interest rate changes.

“Prepare for the worst, hope for the best, but have that playbook ready.”

— Tan Su Shan, CEO, DBS Bank

The Iran war has forced Asian lenders to confront concentration risks building during a Gulf lending spree. These lending decisions were premised on a stable geopolitical (and therefore, economic) outlook. Stress-testing those books against sustained US$100-plus oil, a Hormuz closure that could go for some time yet, or a sanctions extension to secondary parties is no longer a theoretical exercise. The European Central Bank is conducting reverse stress tests for 110 supervised banks in 2026. Asian regulators have stopped short of action such as this, but some private banks in the region are running similar exercises voluntarily.

There are challenges from an operational perspective as well. Geopolitical risk has historically sat in a sub-folder of country risk, reviewed quarterly at best but recent geopolitical volatility has shown why that is no longer good enough. Banks now need to identify what geopolitical risk scenarios can impact them directly, potentially even undermining their solvency. Banks in Asia can consider embedding geopolitical scenario analysis into the internal capital adequacy assessment process as a core scenario. Second, building dual-corridor redundancies will be helpful, be it in the form of correspondent banking arrangements or treasury booking centres. And finally, a slight broadening of the remit of the chief risk officer by giving the role greater authority over cross-border concentration limits.

It is hard to predict where capital should go next. While pulling back from Gulf lending is not difficult, where it should go next is an interesting question. We could see more intra-Asian lending, into pockets like Indian infrastructure, Vietnamese manufacturing or Indonesian critical minerals, or to support the friendshoring trend reshaping supply chains. Banks also have to watch trade flows to keep an eye on trade finance opportunities.

In the area of payments, Asian banks are looking to build redundancy into their clearing arrangements, maintaining access to both SWIFT and CIPS. The rationale is that the closure of one corridor does not stop trade. This is also important given the renminbi’s growing role in trade settlement.

What the Iran war means for Asian finance

Asia is the world’s largest net importer of Middle Eastern energy, and its financial institutions carry the risks that comes with it.

The immediate impact on Asian banks is measurable: Gulf lending books are under pressure, non-interest income is being squeezed and energy-price inflation is impacting borrower quality. These effects will become even more pronounced once second- and third-order impacts of the increase in oil prices are felt across different parts of the economy.

The structural consequences are likely to play out for longer. Asian institutions have to reassess lending to entities in the Middle East, shipping insurance premiums are likely to remain elevated, as our freight costs. All of this is going to impact trade flows, which in turn will result in a realignment of capital flows.

Asia’s financial institutions need to build resilience against an unpredictable external environment and finding the opportunities in what this disruption creates. The region’s banks have shown that they are up for the task.