Singapore's banking system is well-positioned to manage challenges to its macro financial outlook, according to the Monetary Authority of Singapore (MAS).

In its 2024 Financial Stability Report, the central bank said that the banking system has strong capital and liquidity buffers.

"Asset quality remains healthy despite still-elevated borrowing costs, and banks have adequate precautionary buffers to guard against any credit quality decline," MAS stated in the report published on 27 November.

Banks expect credit demand to rise "in the near term" from corporate demand, according to a separate survey by MAS in September 2024. Corporates are reportedly looking to get loans for their capital expenditures and for acquisitions.

Credit growth peaked in early 2024 before moderating in the third quarter of the year, driven largely by interbank lending.

Lending to non-bank entities has also continued to grow since March in tandem with global interest rates transitioning towards an easing cycle, MAS said.

Loans to Singapore residents accounted for most of the recovery in overall lending to non-bank entities.

Loans to trade-related sectors remained weak, however, although the central bank noted "some nascent signs of improvement" as the manufacturing and wholesale sectors registered growth in September.

Total loan value to small and medium enterprises (SMEs) reportedly remained weak, however, and even registered a decline, although MAS attributed this more to the expiry of loans extended by Enterprise Singapore that were introduced during the COVID-19 pandemic.

"A slight tightening of credit conditions due to the pass-through of the earlier rise in global interest rates has also contributed to the weakness in SME credit," MAS said.

"Whilst demand [for loans] will rise, banks plan to maintain current underwriting standards as a safeguard against heightened uncertainty over the economic outlook including from geopolitical tensions," it added.