Singapore’s financial system remains resilient, but MAS warns of rising global risks

SINGAPORE: Domestic financial markets have been resilient, while global risks such as macroeconomic uncertainty and geopolitical conflicts remain elevated, the Monetary Authority of Singapore (MAS) said on Wednesday (Nov 5).

While Singapore's financial stress index - an indicator of stress and contagion - has "moderated from its peak in April to fall below its long-term average", renewed trade conflict or increased global fiscal sustainability concerns could impact investor risk sentiment, said MAS.

"This could lead to potentially sharp corrections in international financial markets, especially amid relatively rich valuations and compressed risk premia."

These are part of the findings presented in MAS' annual financial stability review, which presents the regulator and central bank's assessment of the resilience of Singapore's financial system amid global risks and domestic vulnerabilities.

In April, Singapore's financial stress index rose sharply after the announcement of US reciprocal tariffs, reflecting increased volatility in global financial markets, said MAS. However, the heightened risk aversion was "short-lived" and the stress level has since "eased considerably", it added.

However, global risks from macroeconomic uncertainty due to the higher tariffs, as well as geopolitical issues relating to conflicts and trade tensions, remain.

MAS cited the ongoing conflicts in Ukraine and the Middle East, as well as potential US-China frictions, as key geopolitical risks that could trigger supply shocks in energy and commodities markets.

Trade tensions may also influence the supply chains in strategic sectors such as technology and critical raw materials, MAS added.

Globally, stock markets have hit record highs, driven largely by investments in artificial intelligence, which may leave many investors "significantly exposed" to the sector, said MAS.

It warned of sharp corrections in the wider stock market if investors become less optimistic about AI's ability to generate sufficient future returns.  

SUPPORTIVE DOMESTIC FINANCIAL CONDITIONS

Financial conditions in Singapore have been "mildly accommodative" and supportive of growth, with the easing of interest rates and hence borrowing costs, said MAS.

The three-month Singapore Overnight Rate Average (SORA) - the main interest rate benchmark for floating rate loans - fell to 1.72 per cent in the third quarter of 2025, from 3.59 per cent a year earlier.

Bank loans to consumers and businesses also increased for the second straight year, growing 6.2 per cent and supporting a 9.5 per cent increase in the money supply. Strong growth in SGD deposits by resident individuals and non-financial corporates also supported the money supply growth, said MAS.

The Straits Times Index has gained 17 per cent since the start of the year to an all-time high, according to MAS.

HOUSEHOLDS, CORPORATES TO REMAIN VIGILANT

While the household, corporate and financial sectors have shown financial resilience in the face of downside risks, they need to remain vigilant given the uncertain macrofinancial environment, said MAS.

For households, MAS said that healthy income and financial asset growth have moderated their leverage risk as the financial assets grew faster than household debt.

Stress tests also affirmed that the debt servicing capacity of households is sufficient to tide them through income and interest rate shocks, added MAS.

"To prepare for a more challenging macroeconomic environment, households should therefore exercise prudence in taking up additional leverage and continue to build sufficient liquidity buffers."

For corporates, MAS found that defaults have remained low as strong earnings provided cash buffers, while debt maturity profiles are healthy.

Stress tests showed that most corporates are resilient to interest rate hikes and revenue shocks from higher tariffs, said MAS.

"Amid the macroeconomic uncertainties, more vulnerable corporates and those at risk should ensure that their buffers are adequate, including by managing their debt obligations prudently and planning for increases to liquidity buffers."

For financial institutions such as banks and insurers, MAS said stress tests have confirmed that they have sufficient capital buffers, while investment funds have enough liquid assets to tide them through microfinancial shocks.

MAS advised financial institutions to continue being prudent in managing liquidity and credit risk.