Geopolitical and trade tensions could disrupt global supply chains and reduce trade-dependent lending activity in Singapore.

The Risk Landscape

According to the Monetary Authority of Singapore's (MAS) September 2025 Systemic Risk Survey, 77% of financial institutions cited geopolitical risk as a top concern for Singapore's financial system, including conflicts, trade tensions, and uncertain policies of newly elected governments. This marks a sustained high level of concern, down only marginally from 80% in March 2025. Macroeconomic uncertainty followed at 59% of respondents, a sharp increase of 16 percentage points over the same period. The survey captures the views of chief risk officers from key banks, fund managers, and insurers operating in Singapore.

Singapore's financial sector faces a dual threat: direct exposures to trade-dependent firms and indirect contagion through supply chain disruptions and capital flow volatility. As a small, open economy deeply integrated with global trade flows, Singapore is particularly vulnerable to adverse shocks originating from the US-China rivalry, Middle East conflicts, and the war in Ukraine.

Trade-Dependent Lending at Risk

Singapore's three largest banks—DBS, OCBC, and UOB—maintain significant loan books tied to trade finance, shipping, and supply chain-dependent corporates in Southeast Asia and Greater China. The 2025 EU-wide stress test, conducted by the European Banking Authority, provides a quantified benchmark: under an adverse scenario of intensified geopolitical tensions and trade barriers, total credit losses across EU banks reached EUR 394 billion, with a 437 basis point capital depletion impact from credit risk alone. Critically, export-oriented and supply-chain-dependent sectors accounted for 39% of non-financial corporation exposures.

While Singaporean banks were not part of that exercise, the sectoral composition of their corporate loan portfolios—heavily weighted toward wholesale trade, electronics manufacturing, and commodities processing—suggests similar vulnerability. In its Financial Stability Review, MAS noted that financial institutions flagged concerns that rising trade frictions between the US and China have already altered regional supply chain configurations, potentially leading to credit and market losses through exposures to externally oriented firms.

The imposition of a 10% US tariff on Singapore imports in April 2025 under the International Emergency Economic Powers Act, despite Singapore's free trade agreement with the US and relatively balanced bilateral trade, marks a structural shift. As the EIU notes, a further escalation in trade protectionism would weaken external demand, disrupt supply chains, and raise operational costs for electronics, wholesale trade, and financial services.

Sectoral Exposures Under Pressure

Financial services accounted for 13.5% of Singapore's S$528.6 billion in services exports in 2024, with the US a critical market for fund management, investment advisory, and cross-border financial services. MAS survey respondents noted that trade tensions increasingly shape supply chain configurations, particularly in strategic sectors like technology and critical raw materials. This forces financial institutions to reassess risks around supply chain financing and corporate exposures.

The shipping and logistics sector, which underpins Singapore's role as the world's second-largest container port, faces margin compression as tariff-driven rerouting of trade flows alters shipping routes and volumes. Banks with significant exposures to shipping loans and logistics infrastructure financing could see elevated non-performing loan ratios if sustained volume declines materialize.

Quantified Credit Risk Channels

% of Respondents (%)Source: Orionmano Industries

The MAS survey further highlights that nearly a third of financial institutions citing geopolitical risk specifically mentioned sanctions as a key concern. Sanctions could affect banks' and fund managers' operations by raising compliance costs and compelling abrupt asset sales that trigger financial market volatility. Currency and capital flow volatility also rated highly: a resurgence in inflation from heightened tensions could prompt a sharp pivot away from monetary easing, strengthening the US dollar and amplifying regional volatility.

Supply Chain Reconfiguration as a Structural Risk

Beyond near-term credit and market risks, financial institutions are wary of persistent effects. The US-China rivalry has already driven supply chain shifts, with multinational firms diversifying production bases away from China. Singapore's position as a trade and re-export hub could be undermined if shipping volumes decline or firms reroute operations to Japan, Australia, or India to avoid political risk, as the EIU projects.

The US International Trade Administration notes that Singapore has implemented strategies to enhance supply chain resilience for essential goods, but this does not insulate financial institutions from the credit quality deterioration of clients caught in cross-border tariff regimes. Trade finance, which generates fee income and short-term lending opportunities for banks, faces compression as trade volumes moderate and transaction costs rise.

Outlook

The risk indicators point toward a structurally higher cost of credit intermediation for Singapore's financial sector. Trade-dependent lending—a core profit center for Singaporean banks—faces dual headwinds: weaker volumes from tariff-induced trade deceleration and higher risk premiums as geopolitical uncertainty raises probability of default estimates. The MAS stress testing framework, which incorporates an adverse scenario of intensified trade barriers, would likely reveal capital depletion for locally incorporated banks, particularly those with outsized exposure to China-linked corporate loans and ship financing.

For fund managers operating in Singapore, the repatriation of capital flows and currency volatility create additional headwinds for assets under management growth, which had already moderated from pandemic-era highs. The financial sector's resilience will depend on the pace of supply chain adaptation and the extent to which Singaporean institutions can reorient exposure toward domestically-oriented services and non-trade-dependent corporates.