TGB Regional Banking Monitor: Asia Pacific — Q1 2026

The regional picture

Monetary policy across Asia-Pacific moved in different directions in the first quarter of 2026. The Reserve Bank of Australia (RBA) raised its cash rate target by 25bp to 3.85% on 3 February 2026 and by a further 25bp to 4.10% on 17 March 2026. The Bank of Thailand moved the other way, cutting its policy rate from 1.25% to 1.00% on 25 February 2026 by a vote of 4 to 2. The Bank of Japan, which had raised its overnight call rate guideline to around 0.75% on 19 December 2025, held that level on 23 January and 19 March 2026. China's one-year and over-five-year loan prime rates stayed at 3.0% and 3.5% at the January, February and March 2026 fixings. The Reserve Bank of India kept its repo rate at 5.25% on 6 February 2026, the Bank of Korea held its Base Rate at 2.50% on 26 February 2026, and Bank Negara Malaysia kept its Overnight Policy Rate at 2.75% on 5 March 2026. Bank Indonesia held the BI-Rate at 4.75% in both February and March 2026.

The war in the Middle East became the common shock of the quarter. Bank Indonesia dated the war from the end of February 2026 and said it was placing considerable pressure on global economic conditions. The RBA said on 17 March 2026 that the conflict had resulted in sharply higher fuel prices, which, if sustained, would add to inflation. The Federal Reserve, whose target range feeds into Hong Kong's Base Rate formula, held its target range at 3.50–3.75% on 18 March 2026 and described the implications of the Middle East for the US economy as uncertain.

Asia-Pacific policy rates after the latest decision

Source: Reserve Bank of Australia, Statement by the Monetary Policy Board: Monetary Policy Decision (Media Release 2026-08), 17 March 2026; Bank of Japan, Statement on Monetary Policy (19 March 2026), 19 March 2026; People's Bank of China, Announcement on Loan Prime Rate (March 20, 2026), 20 March 2026; People's Bank of China, Announcement on Loan Prime Rate (January 20, 2026), 20 January 2026; People's Bank of China, Announcement on Loan Prime Rate (February 24, 2026), 24 February 2026; Reserve Bank of India, Monetary Policy Statement, 2025-26 Resolution of the Monetary Policy Committee February 4 to 6, 2026, 6 February 2026; Bank of Korea, Monetary Policy Decision & Opening Remarks to the Press Conference (February 26, 2026), 26 February 2026; Bank Indonesia, BI-Rate Held at 4.75%: Maintaining Stability, Strengthening Economic Growth (News Release No. 28/65/DKom), 17 March 2026; Bank Negara Malaysia, Monetary Policy Statement (5 March 2026), 5 March 2026; Bank of Thailand, Monetary Policy Committee's Decision 1/2026 (BOT Press Release No. 6/2026), 25 February 2026; Monetary Authority of Singapore, MAS Monetary Policy Statement - January 2026, 29 January 2026; Hong Kong Monetary Authority, Adjustment of Base Rate (press release, 11 December 2025), 11 December 2025.

Banking data in this monitor follow each authority's own calendar, so system figures refer to the end of 2025 for Australia, China and Hong Kong, to January 2026 for Indonesia and to the end of September 2025 for India.

Australia: two rate rises and well-capitalised banks

The RBA's February increase was unanimous. The Board said that inflation had picked up materially in the second half of 2025, that some of the increase reflected greater capacity pressures, and that inflation was likely to remain above target for some time. In March the Board said that the effects of the interest rate reductions in 2025 were yet to flow through fully to aggregate demand, prices and wages. It judged that risks had tilted further to the upside, including to inflation expectations. The March decision was closer: five members voted for the increase to 4.10% and four voted to keep the cash rate at 3.85%. The two moves together added 50bp to the cash rate target. The five-to-four vote shows that the Board was divided over how quickly policy needed to tighten.

On releasing its March 2026 Financial Stability Review, the RBA said Australian banks were in a strong position to continue supporting the economy, even if conditions deteriorated sharply. The system's Common Equity Tier 1 (CET1) ratio was 12.3% of risk-weighted assets in December 2025, well above regulatory requirements. Credit quality stabilised in 2025 after a mild deterioration over the previous two years. More than 90% of housing non-performing loans (NPLs) and more than 50% of business NPLs were considered well secured in December 2025. The RBA judged that the banks were unlikely to face substantial direct losses from the Middle East because their direct exposure to the region is very limited. The authorities have also finalised the phase-out of Additional Tier 1 (AT1) capital: the new framework applies from 1 January 2027, AT1 instruments are expected to be phased out by 2032, and the minimum leverage ratio falls from 3.5% to 3.25%.

Commonwealth Bank of Australia's results for the half year to 31 December 2025 show how a major lender went into the rate rises. Statutory net profit after tax was A$5,412m and cash net profit after tax A$5,445m, up 5% and 6% respectively on the first half of the previous financial year. Its net interest margin was 2.04%, 4bp lower than a year earlier. Loan impairment expense was A$319m, a loan loss rate of 6bp, and home loan arrears fell 7bp over the half. The bank's CET1 ratio was 12.3%, against an APRA minimum requirement of 10.25%. The bank said that lower margins and higher operating expenses partly offset volume growth, so the drag on its earnings came from margins and costs rather than from credit losses.

Australian banking indicators

Source: Reserve Bank of Australia, Financial Stability Review – March 2026, Chapter 3: Resilience of the Australian Financial System, 19 March 2026; Commonwealth Bank of Australia, 1H26 Results ASX Announcement (half year ended 31 December 2025), 11 February 2026.

Japan: holding at 0.75% with a hawkish dissent

The Bank of Japan raised its guideline for the uncollateralised overnight call rate to around 0.75% by a unanimous vote on 19 December 2025. At the 23 January 2026 meeting the Policy Board kept the guideline by an 8-1 majority, with one member proposing around 1.0%; the proposal was defeated. The same 8-1 split recurred on 19 March 2026. In March the Bank noted that core consumer price inflation had recently fallen to around 2%. It repeated that, if its outlook is realised, it will continue to raise the policy interest rate. The Bank also said that, after increased tension in the Middle East, global markets had been volatile and crude oil prices had risen significantly. A standing dissent in favour of 1.0% keeps a further increase on the table, while the oil shock adds uncertainty to the inflation path.

For Japanese banks, a higher policy rate can widen the gap between lending and deposit rates. Mitsubishi UFJ Financial Group (MUFG) reported profits attributable to owners of the parent of ¥1,813,508 million for the nine months to 31 December 2025, up 3.7% on a year earlier. MUFG's earnings target for the fiscal year ending 31 March 2026 is ¥2,100.0 billion. Nine-month profit therefore covered about 86% of the full-year target.

China: easing at the margin, thin bank margins

The People's Bank of China (PBOC) eased through targeted instruments in the quarter while the loan prime rates stayed unchanged. It cut central bank lending and discount rates by 0.25 percentage points from 19 January 2026, taking the one-year rate on central bank lending for rural development and micro and small businesses to 1.25%. The PBOC and the National Financial Regulatory Administration (NFRA) adjusted the minimum down payment ratio for commercial housing mortgages, including dual-use commercial and residential properties, to no less than 30%. At its meeting on 26 March 2026 the PBOC's Monetary Policy Committee said it was necessary to continue an appropriately accommodative monetary policy. It also called for large banks to play a leading role, for small and medium-sized banks to focus on their core businesses, and for banks' capital to be strengthened.

Credit growth stayed modest. Outstanding RMB loans were RMB277.52 trillion at the end of February 2026, up 6% year on year. New RMB loans totalled RMB5.61 trillion in the first two months of 2026, while household loans fell by RMB194.2 billion. Outstanding government bonds in aggregate financing grew 16.6% to RMB97.3 trillion, faster than total aggregate financing, which rose 8.2%. The figures suggest that government borrowing rather than household demand was driving the expansion of financing.

Banking institutions' assets reached RMB480.01 trillion at the end of the fourth quarter of 2025, up 8.0% year on year. Commercial banks' NPL ratio fell 0.02 percentage points over the quarter to 1.50%, and provision coverage was 205.21%. Their capital adequacy ratio was 15.46%, with a core Tier 1 ratio of 10.92%. Profitability is the weak point: commercial banks earned RMB2.4 trillion in 2025, but the average return on equity was 7.78% and the return on assets 0.60%. The net interest margin was 1.42% in the fourth quarter of 2025, against 1.43% in the first quarter. The liquidity coverage ratio rose 8.27 percentage points over the quarter to 157.99%. The PBOC and NFRA's 2025 assessment named 21 domestic systemically important banks, with ICBC, Bank of China, China Construction Bank and Agricultural Bank of China in the fourth of five groups and none in the fifth.

ICBC's results illustrate the margin squeeze. Industrial and Commercial Bank of China (ICBC) reported 2025 net profit of RMB370,766 million, against RMB366,946 million in 2024. Its net interest margin fell to 1.28% from 1.42%, a decline of 14bp. Its NPL ratio improved to 1.31% from 1.34%, while its CET1 ratio fell to 13.57% from 14.10%.

Chinese commercial banks, main regulatory indicators, end-Q4 2025

Source: National Financial Regulatory Administration (China), 2025年四季度银行业保险业主要监管指标数据情况 (Key regulatory indicators of the banking and insurance sectors, Q4 2025), 12 February 2026; National Financial Regulatory Administration (China), 2025年商业银行主要监管指标情况表 (Main regulatory indicators of commercial banks, 2025, quarterly table), 12 February 2026.

India: on hold with strong balance sheets

The Reserve Bank of India's Monetary Policy Committee voted unanimously on 6 February 2026 to keep the repo rate at 5.25%, leaving the standing deposit facility rate at 5.00% and the marginal standing facility rate at 5.50%. It kept a neutral stance. Real GDP is estimated to grow 7.4% in 2025-26. The RBI projected CPI inflation at 2.1% for 2025-26, rising to 4.0% and 4.2% in the first two quarters of 2026-27.

Indian banks are in strong shape. The capital to risk-weighted assets ratio of scheduled commercial banks was 17.2% at the end of September 2025. Their gross NPA ratio was 2.1%, after a multi-decadal low of 2.2% at the end of March 2025. Return on assets was 1.3% and return on equity 12.5% in the first half of 2025-26.

South Korea: a hold with rising yields

The Bank of Korea left its Base Rate at 2.50% on 26 February 2026, with all seven Monetary Policy Board members in favour. It raised its 2026 growth forecast to 2.0% from 1.8% in November. Consumer price inflation declined to 2.0% in January 2026. The Bank reported that household loans increased only slightly under the government's macroprudential tightening stance, and that Treasury bond yields rose significantly as expectations of a rate cut weakened and fund flows added supply-demand pressure, before partly reversing.

Indonesia: defending the rupiah

Bank Indonesia held the BI-Rate at 4.75% on 18-19 February and again on 16-17 March 2026, with the deposit facility at 3.75% and the lending facility at 5.50%. The rate was at its lowest since 2022 after 150bp of cuts since September 2024. The rupiah stood at Rp16,985 per US dollar on 16 March 2026, 1.29% weaker than at the end of February, and by the time of the 17 March decision portfolio investment had recorded net outflows of USD1.1 billion in March 2026, which the central bank linked to uncertainty from the war in the Middle East. From April 2026 the central bank lowers the cash threshold for buying foreign currency against the rupiah from USD100,000 to USD50,000 per customer per month.

Bank lending kept growing. Loans rose 9.37% year on year in February 2026, after 9.96% in January. Bank Indonesia projects credit growth of 8–12% in 2026. Transmission of earlier cuts to borrowers remains slow: lending rates were 8.80% in February 2026, only 40bp below their level of 9.20% in January 2025. The capital adequacy ratio was 25.89% in December 2025 and 25.87% in January 2026. The gross NPL ratio was 2.05% in December 2025 and 2.14% in January 2026. High capital gives Indonesian banks room to absorb a weaker rupiah, but the rise in NPLs bears watching.

Indonesian banking indicators

Source: Bank Indonesia, BI-Rate Held at 4.75%: Strengthening Economic Growth, Maintaining Stability (News Release No. 28/43/DKom), 19 February 2026; Bank Indonesia, BI-Rate Held at 4.75%: Maintaining Stability, Strengthening Economic Growth (News Release No. 28/65/DKom), 17 March 2026.

Thailand and Malaysia

The Bank of Thailand's cut to 1.00% on 25 February 2026 came with a warning that overall credit continues to contract and that liquidity for small firms and households remains tight. The Committee also said it was important to monitor the implications of a low policy rate for the build-up of medium-term financial imbalances. Bank Negara Malaysia kept its Overnight Policy Rate at 2.75% on 5 March 2026. The Malaysian economy grew 5.2% in 2025, and headline and core inflation were 1.6% and 2.3% in January 2026.

Singapore: steady policy, lower margins

The Monetary Authority of Singapore maintained the rate of appreciation of its exchange-rate policy band on 29 January 2026, with no change to its width or centre. It raised its 2026 forecasts for core and headline inflation to 1.0–2.0% from 0.5–1.5%. DBS Group reported a record 2025 profit before tax of SGD13.1 billion as total income rose 3% to SGD22.9 billion. Net profit fell 3% to SGD11.0 billion because of the 15% global minimum tax, and return on equity was 16.2%. The group net interest margin narrowed 12bp to 2.01%. The NPL ratio was stable at 1.0%. The reported CET1 ratio was 17.0% on transitional arrangements and 15.0% on a fully phased-in basis.

Hong Kong: margins up, classified loans edging higher

The Hong Kong Monetary Authority (HKMA) set its Base Rate at 4.00% on 11 December 2025 under its pre-set formula. The HKMA's latest half-yearly stability report showed retail banks' net interest margin improving to 1.57% in the second half of 2025 from 1.54% a year earlier. Retail banks' pre-tax operating profit rose 7.3% in 2025 and their return on assets improved to 1.21%. Total loans of all authorised institutions grew 2.3% in 2025. Asset quality is the pressure point: the gross classified loan ratio edged up to 2.01% at the end of 2025. Buffers remain large, with a consolidated total capital ratio of 25.1% at the end of 2025 and an average liquidity coverage ratio for category 1 institutions of 165.6% in the fourth quarter. Lending kept recovering in 2026: total loans rose 1.6% in the first two months, and the Hong Kong dollar loan-to-deposit ratio was 72.4% at the end of February.

Bank results and cross-country comparison

Selected bank results for the latest reported period

Source: Commonwealth Bank of Australia, 1H26 Results ASX Announcement (half year ended 31 December 2025), 11 February 2026; Mitsubishi UFJ Financial Group, Consolidated Summary Report for the nine months ended December 31, 2025 (Japanese GAAP), 9 February 2026; Industrial and Commercial Bank of China, 2025 Annual Results Announcement (HKEX), 27 March 2026; DBS Group Holdings, Fourth-quarter 2025 results news release (Ref No. 01/2026), 9 February 2026.

Asia-Pacific banking monitor: system indicators (reference dates in brackets)

Source: Reserve Bank of Australia, Financial Stability Review – March 2026, Chapter 3: Resilience of the Australian Financial System, 19 March 2026; National Financial Regulatory Administration (China), 2025年四季度银行业保险业主要监管指标数据情况 (Key regulatory indicators of the banking and insurance sectors, Q4 2025), 12 February 2026; National Financial Regulatory Administration (China), 2025年商业银行主要监管指标情况表 (Main regulatory indicators of commercial banks, 2025, quarterly table), 12 February 2026; Reserve Bank of India, Report on Trend and Progress of Banking in India 2024-25 (press release), 29 December 2025; Bank Indonesia, BI-Rate Held at 4.75%: Maintaining Stability, Strengthening Economic Growth (News Release No. 28/65/DKom), 17 March 2026; Hong Kong Monetary Authority, Half-Yearly Monetary and Financial Stability Report (March 2026), Chapter 5: Banking sector performance, 30 March 2026.

On the indicators available, and allowing for different reference periods, Chinese commercial banks' return on equity of 7.78% is well below the 12.5% of Indian banks, while Indonesian and Hong Kong banks report capital ratios of 25.87% and 25.1%. Reported asset-quality ratios range from 1.50% for Chinese commercial banks to 2.14% for Indonesian banks in January 2026.

Outlook risks

The main regional risk is the energy shock from the Middle East. The RBA warned that sustained higher fuel prices would add to inflation, and the Bank of Japan pointed to volatile markets and a significant rise in crude oil prices. In China, a 1.42% net interest margin and a 7.78% return on equity limit the banks' capacity to build capital internally while they are asked to support the economy. In Thailand, credit is contracting with the policy rate already at 1.00%, and the Bank of Thailand itself pointed to limited policy space and the risk of medium-term financial imbalances. Hong Kong's classified loan ratio of 2.01% and Indonesia's rise in NPLs are the asset-quality indicators to follow.

Primary sources: Reserve Bank of Australia, Statement by the Monetary Policy Board: Monetary Policy Decision (Media Release 2026-08), 17 March 2026; Bank of Japan, Statement on Monetary Policy (19 March 2026), 19 March 2026; People's Bank of China, Announcement on Loan Prime Rate (March 20, 2026), 20 March 2026; Reserve Bank of Australia, Statement by the Monetary Policy Board: Monetary Policy Decision (Media Release 2026-03), 3 February 2026; Bank of Thailand, Monetary Policy Committee's Decision 1/2026 (BOT Press Release No. 6/2026), 25 February 2026; People's Bank of China, Announcement on Loan Prime Rate (January 20, 2026), 20 January 2026; Reserve Bank of India, Monetary Policy Statement, 2025-26 Resolution of the Monetary Policy Committee February 4 to 6, 2026, 6 February 2026; Bank of Korea, Monetary Policy Decision & Opening Remarks to the Press Conference (February 26, 2026), 26 February 2026; Bank Indonesia, BI-Rate Held at 4.75%: Maintaining Stability, Strengthening Economic Growth (News Release No. 28/65/DKom), 17 March 2026; Bank Negara Malaysia, Monetary Policy Statement (5 March 2026), 5 March 2026; National Financial Regulatory Administration (China), 2025年四季度银行业保险业主要监管指标数据情况 (Key regulatory indicators of the banking and insurance sectors, Q4 2025), 12 February 2026; National Financial Regulatory Administration (China), 2025年商业银行主要监管指标情况表 (Main regulatory indicators of commercial banks, 2025, quarterly table), 12 February 2026; Reserve Bank of Australia, Financial Stability Review – March 2026, Chapter 3: Resilience of the Australian Financial System, 19 March 2026; Hong Kong Monetary Authority, Half-Yearly Monetary and Financial Stability Report (March 2026), Chapter 5: Banking sector performance, 30 March 2026; Bank of Japan, Change in the Guideline for Money Market Operations (statement, 19 December 2025), 19 December 2025; Bank of Japan, Statement on Monetary Policy (23 January 2026), 23 January 2026; People's Bank of China, Announcement on Loan Prime Rate (February 24, 2026), 24 February 2026; Bank Indonesia, BI-Rate Held at 4.75%: Strengthening Economic Growth, Maintaining Stability (News Release No. 28/43/DKom), 19 February 2026; Board of Governors of the Federal Reserve System, Federal Reserve issues FOMC statement (18 March 2026), 18 March 2026; Hong Kong Monetary Authority, Adjustment of Base Rate (press release, 11 December 2025), 11 December 2025; Monetary Authority of Singapore, MAS Monetary Policy Statement - January 2026, 29 January 2026; Reserve Bank of India, Report on Trend and Progress of Banking in India 2024-25 (press release), 29 December 2025; Reserve Bank of Australia, Release of Financial Stability Review – March 2026 (Media Release 2026-09), 19 March 2026; Commonwealth Bank of Australia, 1H26 Results ASX Announcement (half year ended 31 December 2025), 11 February 2026; Mitsubishi UFJ Financial Group, Consolidated Summary Report for the nine months ended December 31, 2025 (Japanese GAAP), 9 February 2026; People's Bank of China, PBOC to Cut Central Bank Lending and Central Bank Discount Rates, 15 January 2026; People's Bank of China, Notice of the PBOC and the NFRA on Adjusting Policy on the Minimum Down Payment Ratio for Commercial Housing Mortgages, 17 January 2026; People's Bank of China, PBOC Monetary Policy Committee Holds Q1 2026 Meeting, 31 March 2026; People's Bank of China, Financial Statistics Report (February 2026), 13 March 2026; People's Bank of China, Total assets of financial institutions reached RMB538.9 trillion at end-Q4 2025, 13 March 2026; People's Bank of China, PBOC and NFRA Release the List of China's Systemically Important Banks, 13 February 2026; Industrial and Commercial Bank of China, 2025 Annual Results Announcement (HKEX), 27 March 2026; DBS Group Holdings, Fourth-quarter 2025 results news release (Ref No. 01/2026), 9 February 2026; Hong Kong Monetary Authority, Monetary Statistics for February 2026 (press release), 31 March 2026.