By Michel Lowy, Co-Founder and CEO, SC Lowy

Private credit in Asia-Pacific is entering a pivotal stage in its evolution. What was once viewed as a niche alternative to traditional bank lending is rapidly becoming an essential pillar of the region’s corporate financing ecosystem. A confluence of factors is driving this shift: ongoing retrenchment by commercial banks toward only the largest borrowers; tighter regulatory oversight, consolidation among regional banks; divergent country-level banking regimes; and a growing need for bespoke, flexible capital across a still-developing and highly fragmented market. In this environment, private lenders are assuming an increasingly central role in addressing funding gaps and enabling corporate growth.

Although the United States and Europe continue to represent the most mature private credit markets, the Asia-Pacific opportunity set is expanding at a pace unrivalled by other regions, both in terms of scale and breadth of situations available to lenders. For disciplined managers with deep local presence, 2026 marks the early phase of a new multi-year allocation cycle into Asia, characterized by wider, more specialized, and more compelling opportunities than in prior periods.

Five forces in particular are set to shape the next stage of private credit’s evolution in APAC.

1. APAC growth will outpace the West – but fragmentation will define the market

Asia-Pacific is on track to deliver the fastest private credit growth globally in 2026, albeit from a smaller starting base. Market saturation and intense competition are compressing returns in Western markets, while access points in Asia remain less crowded and more varied.

What was once a market defined by Australia, Japan and India, is now broadening into South Korea, Malaysia, Thailand and parts of Southeast Asia, each offering distinct demand drivers and return profiles. However, this growth is accompanied by complexity. Unlike the more standardized US and European markets, APAC remains jurisdictionally diverse, with varied legal systems, tax rules, creditor protections and insolvency frameworks. Underwriting and enforcement require deep local expertise. Much of APAC’s deal flow also hinges on local origination where longstanding regional relationships materially improve sourcing quality, monitoring and downside protection. In this environment, execution and relationships matter more than scale. Lastly, Asian private banks, family offices, and semi-liquid vehicles are accelerating flows into private credit, driving AUM growth and deepening the investor base.

In short, APAC’s private credit ecosystem is expanding in depth, breadth, and sophistication, and moving in a structurally different direction than the sponsor-centric Western markets.

2. Real assets, digital infrastructure and the energy transition will drive borrowing

Corporate and asset-level financing needs remain elevated across the region. Demand for private credit in 2026 will be concentrated in capital-intensive sectors where banks have meaningfully retreated. Real estate remains a core driver, particularly in Australia, South Korea, India, Hong Kong, and Southeast Asia. Significant refinancing walls, tighter bank regulation and constrained balance sheets have created persistent demand for development finance, bridge loans and transitional capital, especially in residential, logistics and mixed-use projects. At the same time, the rapid digitalization of Asian economies is driving investment in data centers, fulfilment networks, and telecom infrastructure. These assets require long-term, flexible financing that private lenders are often better positioned to provide.

Energy transition is another major catalyst. Government decarbonization targets continue to outpace bank lending capacity, pushing renewables, battery storage, grid upgrades and distributed energy solutions toward private capital sources. Healthcare, pharmaceuticals and segments of industrial and manufacturing activity in South Korea, India and ASEAN markets are also contributing to a deep and diversified opportunity set.

3. Higher-for-longer rates will enhance returns while testing credit quality

The return potential for private credit in 2026 continues to be shaped by elevated base rates and persistent inflation, despite an environment where rates continue to move lower. Although policy rates are trending lower in several major economies, all-in borrowing costs remain structurally above pre-2022 levels. Select markets, such as India, are operating with policy rates near multi-year lows relative to their recent tightening cycles, supporting continued credit demand and attractive risk-adjusted spreads. For lenders, this environment continues to drive compelling nominal yields and stronger cash-on-cash returns on newly originated, predominantly fixed-rate loans. The persistence of higher real rates, combined with disciplined deployment into credit-constrained markets, is likely to sustain durable return potential throughout 2026.

At the same time, higher financing costs are exerting pressure on corporate margins, particularly for mid-market and non-sponsor-backed borrowers. Refinancing risk is rising, and stress is expected to materialize unevenly across sectors. Real estate and discretionary consumer businesses remain more vulnerable to rate sensitivity and liquidity pressures, while essential services, infrastructure, and contracted-revenue businesses continue to demonstrate greater resilience. These conditions heighten the importance of conservative leverage levels, strong covenant packages, first-lien seniority, and rigorous stress-testing. In Asia, where secondary liquidity remains limited, managing downside risk through structure and discipline is critical.

Overall, a higher-for-longer rate backdrop enhances return potential but reinforces the need for selective underwriting, sector specialization and continuous portfolio surveillance.

4. Capital is moving east despite APAC remaining structurally under-allocated

Global investors are expected to gradually increase exposure to Asian private credit over the next two years, driven by the search for yield, diversification and uncorrelated return streams. Greater education and familiarity with Asia have also reduced perceived barriers. Slower exits and lower distributions in US and European credit funds are further reinforcing this reallocation trend. However, even with rising inflows, APAC remains significantly under-allocated compared to Western markets. This imbalance continues to support attractive spreads, lender-friendly documentation and bilateral deal opportunities that are less prevalent in more competitive regions.

Importantly, regional capital is also stepping up. Sovereign wealth funds, pension schemes, insurers and family offices across South Korea, Singapore, Hong Kong, Australia and Southeast Asia are becoming more active participants. Their increasing willingness to commit to experienced regional-focused fund managers and co-invest alongside them is deepening market liquidity and reducing dependence on Western capital sources.

5. Private credit will become embedded in Asia’s financial ecosystem

In 2026, Asian private credit will no longer be peripheral. It will be an established, mainstream source of financing sitting alongside banks and capital markets. The asset class is benefiting from improved governance and institutional participation, while still preserving the flexibility needed to navigate diverse jurisdictions. Over time, broader sector coverage, improved regulatory and enforcement frameworks, and gradual development of secondary markets will continue to strengthen confidence among institutional and wealth-channel investors.

The managers best positioned to succeed will be those that maintain a strict focus on first-lien, senior-secured strategies, prioritize local origination, and apply disciplined underwriting. In APAC, sustainable alpha is created through execution, not leverage.

Looking ahead

Asia-Pacific’s private credit is transitioning from a niche opportunity to a foundational component of global private credit portfolios. The landscape in 2026 will be defined by rapid evolution, structural inefficiencies and selective opportunity. The convergence of bank retrenchment, capital-intensive growth sectors, rising regional capital pools and financing gaps makes this one of the most compelling private credit environments globally. For managers with deep local knowledge and sourcing expertise, patient capital, and a conservative mindset, APAC does not merely offer growth potential, it offers the opportunity to build durable, repeatable returns in an increasingly unpredictable world.

This document has been prepared solely for informational purposes and does not constitute, and should not be construed as, an offer to sell or a solicitation of an offer to purchase any securities, investment products, or services. Any such offer or solicitation will be made only by means of definitive offering materials and in accordance with all applicable laws and regulations.

The views and opinions expressed herein are those of SC Lowy and are subject to change without notice. Certain information contained in this document constitutes “forward-looking statements,” which are based on assumptions, estimates, and expectations that may be inaccurate or subject to risks and uncertainties beyond our control. Actual results may differ materially from those expressed or implied.

This document is not intended to provide, and should not be relied upon as, legal, tax, accounting, or investment advice. Investors should make their own independent evaluation of the information presented and, where appropriate, consult their own professional advisers.

Information contained herein has been obtained from sources believed to be reliable, but SC Lowy makes no representation or warranty, express or implied, as to the accuracy, completeness, or reliability of such information. All data and figures are provided as of the date of this document unless otherwise stated.

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