Singapore banks guarded by tax relief and financing amid economic pressures

SINGAPORE: In his Budget 2025 address on February 18, Singapore’s Prime Minister, Lawrence Wong, unveiled a series of measures aimed at supporting local businesses. These efforts, including significant tax incentives, rebates, and new financing avenues, are designed to strengthen the financial health of local businesses and maintain the stability of banks’ asset quality.

Tax incentives and the rise of private credit funds

A recent Asian Banking and Finance article indicated that one of the highlights of the Budget was the introduction of a 50% corporate income tax rebate, alongside incentives aimed at encouraging companies to list on the local stock exchange. Additionally, the government is setting up a S$1 billion Private Credit Growth Fund, intended to provide high-growth local enterprises with more financing options. These initiatives are part of Singapore’s broader effort to ease the financial strain on businesses, especially amid rising cost pressures.

According to RHB Group analyst Shekhair Jaiswal, the government’s support measures are likely to ensure that local banks’ asset quality remains benign. He further noted that the efforts to enhance the attractiveness of Singapore’s stock market could bolster wealth management income, which would be a positive for the sector overall.

Banking stocks – Defensive and resilient amidst global uncertainty

While the private credit fund is still in its nascent stages in the region and unlikely to pose a significant threat to bank lending for now, it raises intriguing questions about the future. Jaiswal pointed out that if the private credit market grows substantially in the long run, banks may need to decide whether to cooperate or compete with this emerging asset class.

In the meantime, Singapore’s bank stocks continue to present solid defensive investment options. With fewer anticipated cuts in the US Federal Reserve’s interest rates, analysts expect that the downside risks to earnings for local banks will remain limited. Additionally, the attractive dividend yields of Singapore’s banks make them an appealing choice for investors looking for stable returns in uncertain times.