Strong demand from lenders has enabled borrowers to secure increasingly attractive terms, with margins tightening even in higher-yielding sectors like digital infrastructure.
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% to a two-year low of $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 dollar borrowing or switch to local currency funding.
At the same time, Asia Pacific ex-Japan bond sales grew 27% last year to hit a four-year high of $317 billion, according to Bloomberg-compiled data, further shifting financing away from loans.
This is all tilting the loan market in favor 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 like 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 Ltd. 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 SA, as well as repeat names from the Middle East. Borrowers from the Gulf raised a record $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 Middle Eastern borrowers have been "chasing more favorable 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 Southeast Asia, India and the Middle East at Australia & New Zealand Banking Group Ltd. "For those transactions, we see quite strong participation from the Asian investor pool."
Digital Infrastructure Boom
Surging demand to fund data centers globally is set to remain a major theme in 2026, driven by AI, cloud computing and digitalization, loan bankers said. Jumbo deals -- such as the $3.8 billion facility backing the purchase of ST Telemedia Global Data Centres -- will help boost volumes.
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 AG. 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%. Unlike operating company loans, where borrowers directly own and run data centers, 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 SA. 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, and competitive pricing. Volumes rose 13% year-on-year to $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 ($2.7 billion) acquisition of National Storage REIT and Sembcorp Industries Ltd.'s A$6.5 billion purchase of Alinta Energy Pty. 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 Plc 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 Corp.
In China, some borrowers are favoring 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."