With the Federal Reserve raising rates for the first time in nine years, higher borrowing costs might spark a credit crunch in Asia and hurt growth, analysts said.
Dollar credit to non-banks outside the U.S. came in at $9.8 trillion at the end of the second quarter, with around $3.3 trillion of that lent to emerging market economies, according to the Bank for International Settlements (BIS). In some major emerging markets, the dollar debt of non-bank borrowers doubled from the first quarter of 2009 through the second quarter of 2015, the BIS said.
"Since high overall dollar debt can leave borrowers vulnerable to rising dollar yields and dollar appreciation, dollar debt aggregates bear watching," the BIS said in a report published earlier this month.
The dollar has already appreciated quite a bit against many emerging market currencies and the Federal Reserve's interest rate hike Wednesday is widely expected to strengthen the greenback even further. The Fed raised its target federal funds rate to a range of 0.25 to 0.5 percent on Wednesday, marking its first rate increase since June 29, 2006.
Andrew Tilton, chief Asia-Pacific economist at Goldman Sachs, noted that many Asian economies have seen a rapid buildup in debt, partly due to easy monetary policy in developed markets.
"A lot of the Asian economics have more debt than you would expect given their level of per capita income," notably in China, Malaysia and Thailand, Tilton said at a press briefing last week.
"Our research suggests that following periods of rapid debt increases, we tend to see periods of slower economic growth," Tilton said.
U.S. dollar denominated debt has been a particular area of concern for emerging markets in general as it becomes more expensive to service when local currencies decline and greenback rises.
"As those bonds come due for refunding, if the dollar credit market is tighter, you could have a situation where some of those corporates need to try to find funding in their local markets again and if those local markets are not as deep, the cost may be significantly higher. So that's certainly a risk," Tilton said.
But Tilton doesn't foresee a repeat of the Asian Financial Crisis during late 1990s, largely because this time around, the borrowers are mainly non-financial companies.
"With a nonfinancial corporate there's some capacity for absorbing some of that shock by having lower profits or maybe cutting capital expenditures before there would actually be some sort of default," Tilton said. That differs from a bank, which would likely see its ability to extend credit to the economy impaired, causing larger knock-on effects, he said.
Some analysts, however, are concerned about the potential for credit tightening in the region.
"This is kind of Asia's Achilles heel," Rob Subbaraman, Nomura's chief economist for Asia ex-Japan, said at a press briefing last week. "Asia is more than four times exposed to financial imbalances than the other big emerging-market regions outside Asia."
He sees risks for a credit crunch in the region as China's economy slows and the Fed starts increasing rates.
"Market liquidity, we think, could evaporate quite quickly," Subbaraman said. "I wouldn't dismiss lightly the risk of an abrupt reversal of Asia's financial cycle."
Those concerns are reflected in Nomura's Asia stock picks for 2016. It's focusing on Asian companies that have a net cash position to insulate against any potential credit crunch.
—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1