MAS: Singapore banks remain ‘strong’ and rise in corporate borrowing expected

SINGAPORE: The city-state’s banking system remains resilient and well-equipped to handle potential risks to its financial outlook, according to the Monetary Authority of Singapore (MAS).

Robust banking sector

In its 2024 Financial Stability Report featured by the Singapore Business Review, the central bank highlighted that the sector is backed by robust capital and liquidity buffers, ensuring it can weather economic headwinds.

Despite the pressures of elevated borrowing costs, asset quality remains strong, with MAS reporting that banks have sufficient precautionary measures in place to protect against any downturn in credit quality.

This is further supported by a survey conducted by MAS in September 2024, which revealed that banks expect credit demand to rise, driven primarily by corporate borrowing.

Companies are reportedly seeking loans for capital expenditures and acquisitions, signalling a recovery in corporate activity.

Growth in non-bank lending

Credit growth reached its peak earlier in 2024 before tapering off in the third quarter, with interbank lending accounting for much of the surge.

Meanwhile, lending to non-bank entities has continued to increase, in line with the global trend of interest rate easing.

Loans to Singapore residents have played a major role in the overall growth of non-bank lending, while credit demand in trade-related sectors remains subdued.

However, MAS noted signs of recovery in the manufacturing and wholesale sectors, which showed growth in September.

SME challenges

The report also touched on challenges faced by small and medium enterprises (SMEs), with lending to this sector remaining weak and even experiencing a decline.

MAS attributed this to the expiration of COVID-19-related loans from Enterprise Singapore and the tightening of credit conditions as global interest rates rose.

Looking ahead, MAS emphasized that while loan demand is expected to increase, banks intend to uphold stringent underwriting standards to navigate the uncertainties posed by the economic environment, including geopolitical risks.

This approach reflects a cautious but optimistic outlook for Singapore’s banking sector in the face of evolving global economic conditions.