Declining interest rates and strong trade-related lending drove the rebound, with bank lending expanding for a second straight year.

Singapore's resident loans expanded 6.2% in 2025, driven by a sharp decline in domestic interest rates that lowered borrowing costs for businesses and households. The rebound marked the second consecutive year of expansion after a 2.4% contraction in 2023, supported by accommodative financial conditions that spurred credit demand across both corporate and consumer segments.

Falling Interest Rates Unleash Credit Demand

Accommodative monetary policy, primarily through a significant decline in the Singapore Overnight Rate Average (SORA) and long-term bond yields, enabled the credit expansion. The 3-month compounded SORA dropped from 3.59% in Q3 2024 to 1.72% in Q3 2025, according to the Monetary Authority of Singapore's Financial Stability Review 2025. Long-term bond yields fell 102 basis points over the course of 2025, while the Straits Times Index rose 17% to reach an all-time high.

The decline in benchmark rates reflected a broader easing of global monetary conditions, with major central banks pivoting toward accommodative policy amid moderating inflation. Singapore's financial conditions eased in tandem, compressing investment-grade credit spreads and reducing the cost of capital for businesses and households. The resulting credit impulse was broad-based: bank lending to consumers and businesses expanded for the second straight year, growing 6.2% and supporting a 9.5% increase in the money supply as measured by M2.

YoY Growth (%)Source: Orionmano Industries

Business Loans Surge on Trade and Tech Tailwinds

Resident nonbank lending grew 6.8% year-on-year in the first nine months of 2025, according to the ASEAN+3 Macroeconomic Research Office (AMRO), as both business loans and household loans recovered. Business loan momentum peaked early in the year, then softened through April 2025 before picking up again, largely driven by swings in lending to trade-related industries amid uncertainty around US tariff policies.

The recovery was initially concentrated in trade-related sectors, buoyed by front-loading of exports and strong global demand for electronics linked to AI-related products. This pattern is consistent with broader regional dynamics: Singapore's GDP expanded by 4.3% year-on-year in the first three quarters of 2025, supported by a delay in US reciprocal tariff implementation to August 7 and continued front-loading activities ahead of that deadline.

Around mid-2024, the recovery became more broad-based, with property-related industries joining the expansion as business sentiment improved. The trade-driven surge in business lending reflected both genuine demand from the electronics upcycle and precautionary inventory building in anticipation of trade disruptions. However, tariff uncertainties have introduced volatility into lending patterns, with trade-related credit demand oscillating as firms adjusted their working capital requirements in response to shifting policy signals.

Household Borrowing Climbs on Housing Demand

Household liabilities grew 7.4% in Q4 2025, the fastest pace since Q4 2021, marking nine consecutive quarters of increases, according to The Straits Times. Personal loans rose 12.8% year-on-year, while mortgage debt—typically the largest component of household liabilities, accounting for at least 70% of total debt—remained manageable with low delinquency rates.

The housing market provided a strong tailwind for household borrowing. The resale price of public housing, which comprises about 70% of residential dwelling units, nearly doubled its growth rate from 4.9% in 2023 to 9.7% in 2024, according to the International Monetary Fund. This prompted the government to tighten the loan-to-value ratio for HDB loans from 80% to 75% in August 2024. Active resale activities, amid some tightness in supply and favorable household income growth, have sustained demand for both public and private residential properties.

Lower interest rates have also driven demand for bridging loans, as households took advantage of reduced borrowing costs to finance property transactions. However, the pace of asset appreciation may moderate: household debt growth outpaced asset growth for the first time since 2019 in Q4 2025, a development that warrants monitoring.

Banking System Resilience and Emerging Risks

The banking sector entered the period of rapid credit expansion from a position of strength. The overall non-performing loan ratio declined for a fifth consecutive quarter to 1.2% in Q2 2025, with all major segments registering lower NPL ratios than a year ago, per AMRO. The capital adequacy ratio stood at 18.2% in Q3 2025, well above minimum regulatory requirements, while liquidity and maturity risks remained low.

However, emerging risks warrant attention. Household debt growth outpaced asset growth for the first time since 2019, signaling a potential deterioration in household balance sheets if asset prices stall. While mortgage debt remains manageable with low delinquency, personal loans—which rose 12.8% year-on-year—show elevated delinquency rates among borrowers aged 21 to 29. Debt counselling organizations have reported that more individuals are seeking help for debts arising from lifestyle expenses, income drops, family support obligations, medical costs, and renovations.

The outlook for loan growth in 2026 will depend critically on the resolution of tariff uncertainties. While extreme tariffs and all-out retaliatory trade wars have been avoided thus far, the potential for further volatility in trade restrictions could prolong firms' caution in making new investments outside the technology sector. Households' ability to service rising debt amid a potential slowdown in asset appreciation will also be a key determinant of credit quality going forward.