SINGAPORE, Nov 29 Reuters As Asia39;s banking sector navigates a peak in global interest rates and risks of slower growth, investors are wagering that banks in India and Indonesia have the strongest loan and profitability profiles to provide returns next year.

Over the past 18 months Asian central banks tracked the U.S. Federal Reserve tightening monetary policy to battle inflation, but their interest rates hikes were smaller and slower, resulting in better interest income for the region39;s banks without loan growth suffering.

Banking indexes in India, Indonesia and Thailand have all outperformed the broader MSCI Asia exJapan index as well as the SP banks index since March 2022, when the Fed started raising rates.

But now, as a steep global rates cycle peaks and the spectre of recession looms, investors are turning selective and focusing on banks that kept funding costs down while expanding loans.

The hope is that we39;re going to see a mild ratecutting cycle coming into next year, nothing too aggressive … that should generally be positive for the financial sector in Asia because it should spur loan growth, said Frederic Neumann, chief Asia economist at HSBC.

Neumann points to India, where banks have delivered doubledigit loan growth over the past few months due to rising demand for credit in the world39;s most populous but underbanked nation.

Loan growth at Asian banks is estimated to rise from 4.5 this year to 10 next year, LSEG data shows, with banks in…