Monetary Authority of Singapore expects loan growth resilient before moderating, supported by Fed rate hold and stable macroeconomic conditions.

Macroeconomic Context: Low-Rate Momentum

The Monetary Authority of Singapore has identified a low-interest-rate environment driven by expectations that the U.S. Federal Reserve will hold rates steady as a key factor that should encourage borrowing and sustain loan demand, particularly in early 2026. MAS also anticipates that loan growth will stay resilient before moderating as the year progresses, reflecting a more cautious economic outlook. This dual dynamic sets the stage for a borrowing cycle that front-loads demand in the first half of the year before tapering.

The SGD credit market has already demonstrated this pattern. Issuers capitalised on Singapore’s low-interest-rate environment to come to market in 2025, with demand driven by expectations of Fed rate cuts. According to OCBC Global Markets Research, issuance levels are expected to decline somewhat for 2026 after the already high issuance volume in the past two years. Non-financial corporate perpetuals saw a particularly significant rise as issuers locked in prevailing low rates and tight credit spreads, reducing refinancing risk and enhancing financial stability.

Impact on Banks: Volume vs. Margin

The low-rate environment presents a mixed picture for Singapore’s banking sector. Sing Investments & Finance Limited (SIF) reported a net interest margin improvement to 2.27% in FY2025 from 1.99%, supported by strong double-digit growth in both net interest income and non-interest income. However, the continued low-interest-rate environment is likely to place pressure on SIF’s net interest margin going forward. As reported by Yahoo Finance Singapore, lower interest rates could boost borrowing appetite and loan demand, and volume-driven growth might compensate for NIM compression.

All three major Singapore banks—DBS, OCBC, and UOB—have grown loan volumes while maintaining prudent underwriting standards, as evidenced by low non-performing loan (NPL) ratios. This discipline is particularly visible in the housing loan segment. MAS data shows that the NPL ratio on housing loans remained low in Q2 2025, and delinquency rates on credit and charge card debts have kept low at 0.9%. This suggests that banks are not sacrificing credit quality for volume growth, even as they compete for market share in a lower-rate environment.

Borrower Behaviour: Mortgage Refinancing and Product Preference

Mortgage borrowers in Singapore have responded to the low-rate environment with clear shifts in behaviour. Data reported in early 2026 shows floating-rate packages averaging roughly 1.47%–1.67%, while fixed-rate packages sit around 1.48%–1.75% for competitive loan sizes. Despite the narrow spread, roughly four in five borrowers at some banks still opt for fixed packages for predictability. This preference reflects a psychological shift after the volatility of the 2022–2023 tightening cycle; many borrowers now prioritise stability over chasing marginal savings.

Another notable trend is the migration of HDB borrowers toward bank financing. The movement reflects improved affordability as rates have fallen, but also greater borrower sophistication. More households are running detailed comparisons rather than switching impulsively. Borrowers are also stress-testing repayments rather than assuming the low-rate environment will persist indefinitely, a prudent behaviour shaped by recent experience with rapid rate movements in both directions.

%Source: Orionmano Industries

Sector Outlook: Medium-Term Growth and Digitalisation

Beyond the cyclical low-rate environment, structural forces continue to strengthen Singapore’s role as a global financial hub. The financial services sector is projected to grow at a compounded annual growth rate of 4.0% from 2024 to 2029, highlighting its sustained expansion potential. Digitalisation and the growing adoption of AI tools are enhancing the sector’s capabilities, improving operational efficiency and enabling more sophisticated risk assessment and customer engagement.

This medium-term trajectory suggests that even as loan growth moderates later in 2026, the underlying demand for financial services in Singapore remains robust. Banks that have invested in digital transformation and maintained prudent underwriting standards are well-positioned to capture this growth, regardless of the rate cycle. The combination of volume-driven lending, digital efficiency gains, and Singapore’s entrenched status as a global financial hub provides a structural buffer against cyclical margin compression.