MAS projects steady lending amid accommodative financial conditions, with overall loans rising 5.7% y-o-y in November 2025 and banks guiding low-to-mid single-digit growth for 2026.

Current Lending Momentum

Singapore's loan growth accelerated to 6.1% year-on-year as of January 2026, building on a strong fourth quarter in which overall loans rose 5.7% y-o-y in November 2025 according to MAS data. This momentum reflects broadly accommodative macroeconomic and financial conditions that have strengthened credit intermediation following recent monetary easing.

Deposit dynamics have also improved, providing banks with a cushion against margin compression. Current Account and Savings Account (CASA) balances rose 12% y-o-y, with the CASA ratio to total deposits increasing to 19.8% in December 2025 from 19.6% previously. The improvement in low-cost funding is helping to lower overall funding costs across the sector.

Management teams across Singapore's banking sector are guiding for low-to-mid single-digit loan growth, with Phillip Securities Research noting that net interest margin compression should begin to ease in FY2026 as deposit rate cuts flow through and interest rates stabilise. The sector has demonstrated resilience through improved deposit dynamics even as traditional banking headwinds persist.

Fed Rate Pause and Early 2026 Outlook

Expectations that the U.S. Federal Reserve will hold rates steady provide a key tailwind for borrowing demand, particularly in the first half of 2026. As noted in FPA Financial's Market View, a low-interest-rate environment driven by the Fed's steady stance should encourage borrowing and sustain loan demand, especially in the early part of the year.

The Monetary Authority of Singapore, in its January 2026 Monetary Policy Statement, confirmed that financial services should be supported by steady lending and capital market activity. MAS noted that the finance & insurance sector is expected to remain supported by broadly accommodative macroeconomic and financial conditions, with recent monetary easing having strengthened credit intermediation.

The near-term outlook for Singapore's GDP growth remains resilient, according to MAS, with the expansion in trade-related sectors underpinned by continuing strength in the global AI-driven capex cycle. Growth in non-technology-related segments is also forecast to be firm, with the construction sector benefiting from a continuing pipeline of public and private projects.

Moderation Drivers for Later 2026

Despite early-year strength, loan growth is projected to moderate as 2026 progresses, reflecting a more cautious economic outlook. The MAS Macroeconomic Review (April 2026) projects GDP growth to slow in 2026 from the exceptional outturn in 2025, with the output gap forecast to average around zero percent for the full year.

Rising oil prices present a specific headwind. Phillip Securities Research highlights that higher oil prices introduce inflation risks that could potentially delay further rate cuts, which would in turn affect borrowing conditions. Energy supply shortfalls and higher input costs will continue to weigh on energy-dependent industries in Singapore before spilling over to the broader economy over the course of the year.

While global AI-related capex will provide some support, the deceleration in economic activity and the closure of the output gap are likely to dampen credit demand in the second half of the year. MAS anticipates that loan growth will stay resilient before moderating as the year progresses, aligning with the broader economic slowdown.

Structural and Sectoral Trends

Beyond cyclical dynamics, structural forces continue to strengthen Singapore's role as a global financial hub. The Singapore financial services sector is expected to grow at a CAGR of 4.0% from 2024 to 2029, according to Market Research Singapore, highlighting sustained expansion potential supported by advances in digital banking, fintech innovation, and regulatory support.

The SGD credit market has shown robust activity, with YTD issuance reaching approximately S$32.2 billion as of November 2025, exceeding full-year 2024 issuance of S$29.6 billion according to OCBC Credit Research. The strong performance was supported by favourable rates and contained credit spreads that created an attractive borrowing environment.

Banks expect net interest margin compression to ease in FY2026 as deposit rate cuts flow through, while increased market volatility and higher Singapore Dollar Average Volume are boosting capital markets and fee income, helping to offset traditional banking headwinds. The moderation in rate declines comes as Singapore continues to attract capital inflows, with foreign exchange reserves rising 10% y-o-y in February 2026, reinforcing the city-state's position as a regional safe haven.

Index (2024=100) (Index)Source: Orionmano Industries

The near-term resilience in Singapore's loan growth is underpinned by steady Fed rates and early-2026 momentum, with banks benefiting from improved deposit dynamics and broadening fee income streams. However, the eventual moderation in the second half aligns with broader economic slowing and output gap closure as forecast by MAS. While headwinds from rising oil prices and slowing GDP growth will constrain the pace of credit expansion, the structural growth trajectory of Singapore's financial services sector remains intact, supported by its deepening role as a global financial intermediary.