Banking Risk Monthly Outlook: July 2026

What we're watching

Our banking risk experts provide insight into events impacting the financial sector in emerging markets in July:

• Higher interest rates in some emerging Asian banking sectors will likely lead to slower credit growth by the end of 2027.
• Serbia’s interest rate cap order will expire in September, and expectations of this are likely to boost credit growth before expiration.
• Argentinian banks will continue to increase their exposure to the private sector.
• The Gulf Cooperation Council (GCC) central banks will continue to provide stimulus support measures in the coming months.

Asia-Pacific banking risks

Higher interest rates in some emerging Asian banking sectors will likely lead to slower credit growth by the end of 2027. Several emerging Asian central banks, including Indonesia, Pakistan, Philippines and Sri Lanka, had raised interest rates since February 2026. The combined effect of higher energy costs and the higher interest rates will negatively impact credit growth compared to the pre-US/Israel-Iran war credit growth trajectory towards the end of 2026 and in some cases in 2027 when the transmission of the interest rate increase has been passed through.

Europe banking risks

Serbia’s interest rate cap order will expire in September, and expectations of this are likely to boost credit growth before expiration. In its recently published Third Review Under the Policy Coordination Instrument for Serbia, the International Monetary Fund (IMF) noted that although household balance sheets remain sound, the pace of household credit growth warrants close attention. The introduction of the countercyclical capital buffer (CCyB) is a “welcome step” as a buffer against downturn in the credit cycle, but is too broad to target credit growth in a specific segment. Authorities have agreed to allow the supervisory expectations on cash loan and mortgage interest rates to expire as scheduled in September 2026; although we anticipate a strong pace of household loan growth after this, it is likely to slow as banks respond to the cap lift, and we expect that borrowers will be keen to benefit from the capped rates before the measures are lifted.

Latin America banking risks 

Argentinian banks will continue to increase their exposure to the private sector. As incentives to lend to the government or the central bank have diminished, banks have increased their exposure to the private sector. Credit as a proportion of GDP has reached its highest level in almost 10 years and high levels of peso liquidity — triggered by higher customer conversion of pesos into dollars via the financial system — has increased the incentives for banks to continue the lending streak despite growing levels of impairment. Although the rebalancing of the balance sheet is generally a positive from a growth and development perspective, a greater allocation of funds towards a sector (particularly households) with signs of underlying weaknesses is likely to shift the credit risk profile from the public to the private sector in the short and medium terms.