Low-rate environment and strong CASA deposits drive early-2026 borrowing, but cautious outlook signals deceleration later in the year.

Loan Growth Surge in Early 2026

Singapore's total loan growth accelerated to 6.24% year-on-year in March 2026, the highest monthly reading since the current cycle began, according to CEIC Data. This marks a sharp increase from 5.39% in February 2026 and 6.1% in January 2026, as reported by POEMS Research. The momentum reflects sustained borrowing demand across both corporate and consumer segments during the first quarter.

Bank management teams are providing guidance for low to mid-single-digit loan growth for the full fiscal year 2026, indicating they view the Q1 surge as partly a front-loading effect. POEMS Research notes that management teams across the sector expect net interest margin compression to ease in FY2026 as deposit rate cuts flow through and interest rate stabilisation takes hold. The improved deposit dynamics provide a buffer: Current Account and Savings Account (CASA) balances rose 12% year-on-year, with the CASA ratio to total deposits increasing to 19.8% in December 2025 from 19.6% previously.

YoY Growth (%) (%)Source: Orionmano Industries

Low-Interest-Rate Environment Sustains Borrowing Demand

The borrowing surge is underpinned by expectations that the U.S. Federal Reserve will hold rates steady through the early part of 2026. According to FPA Financial's February 2026 market view, "a low-interest-rate environment, driven by expectations that the U.S. Federal Reserve will hold rates steady should encourage borrowing and sustain loan demand, particularly in the early part of the year." This dynamic has kept Singapore's benchmark rates at accommodative levels.

The 3-month compounded Singapore Overnight Rate Average (SORA) has been range-bound around 1.1%–1.2% in early 2026, according to DollarBack Mortgage. Fixed mortgage rates remain widely available between 1.4% and 1.8%, providing consumers and businesses with predictable borrowing costs. The Monetary Authority of Singapore, in its January 2026 Monetary Policy Statement, noted that financial services "should be supported by steady lending and capital market activity," reinforcing the link between rate stability and credit expansion.

The low-rate environment has also driven capital inflows. POEMS Research reports that Singapore's foreign exchange reserves rose 10% year-on-year in February 2026, reinforcing the city-state's position as a regional safe haven. The combination of steady Fed guidance and ample local liquidity has created conditions where borrowers are incentivised to lock in funding costs before any potential rate reversal.

Banking Sector Resiliency and Structural Tailwinds

Beyond cyclical rate dynamics, structural factors are reinforcing Singapore's banking sector performance. The Singapore financial services sector is projected to grow at a compound annual growth rate of 4.0% from 2024 to 2029, according to Market Research Singapore via FPA Financial. Digitalisation and the growing adoption of AI tools are enhancing sector productivity, supporting cost efficiency even as net interest margins face compression.

Phillip Securities Research expects fiscal year 2026 profit after tax and minority interests (PATMI) for the banking sector to increase 7% year-on-year, supported by continued fee income growth. This resilience comes despite ongoing pressure on net interest income, as higher market volatility and increased Singapore Dollar Average Volume boost capital markets and fee-generating activities. The improvement in low-cost funding — evidenced by the 12% rise in CASA balances — provides banks with a cushion against margin compression and helps lower overall funding costs.

The auxiliary activities segment, which consists largely of payment service providers, is also expected to expand at a steady pace, supported by firm regional consumption and stable payments activity. These structural drivers are critical because they reduce the banking sector's dependence on net interest income alone, providing diversification that can sustain earnings even when loan growth moderates.

Outlook: Moderation Later in 2026 on Cautious Economic View

Despite the strong Q1 showing, the trajectory for loan growth is expected to decelerate as 2026 progresses. The MAS anticipates that loan growth "will remain resilient in the early part of 2026 before moderating later in the year, reflecting a more cautious economic outlook," according to FPA Financial's summary. The central bank's January 2026 statement projects that GDP growth will ease relative to the stronger outturn in 2025, with the positive output gap projected to narrow over the course of the year.

Several factors underpin this cautious outlook. Rising oil prices present inflation risks that could delay further rate cuts, notes POEMS Research, potentially keeping funding costs higher than current expectations. The OCBC Credit Outlook for 1H2026 expects SGD credit issuance to decline somewhat after the already high volumes of the past two years, reflecting reduced catalysts for new borrowing. On the mortgage side, DollarBack Mortgage reports that SORA may bottom near 1% in the first half of 2026, then rebound modestly to 1.3%–1.4% later in the year, as the sharp easing phase concludes.

The March 2026 peak of 6.24% loan growth is therefore likely to represent a near-term high. The supportive role of steady U.S. rates will remain in place, but the moderating influence of a cautious macro outlook — combined with reduced issuance appetite and potential inflationary headwinds — points to deceleration into the second half of the year. Readers should monitor the SORA trajectory and Federal Reserve guidance closely for signals of any shift in H2 2026 conditions.