Loan competition may weigh on Singapore banks’ margins

CGS International expects NIM expansion to support NII only from 4Q26.

Singapore banks could face continued pressure on net interest margins (NIMs) from competition for higher-quality loans, according to CGS International.

The brokerage expects NIM expansion to support net interest income (NII) only from the fourth quarter of 2026.

It noted that Singapore banks, citing limited near-term earnings drivers. It expects slowing wealth management fee growth, alongside slower deposit growth in Singapore, to weigh on earnings.

Singapore system loans grew 2.5% month on month and 16.1% year on year in August 2026, according to the Monetary Authority of Singapore. Consumer loans rose 6.0% month on month, compared with 1.0% growth in business loans.

“We believe the elevated growth in consumer loans in Aug 26 could be transient given growth was predominantly driven by the ‘others’ sub-segment, which excludes longer-term consumer loans such as housing and bridging loans, car loans, credit cards, and share financing,” CGS noted.

The brokerage said the rise in consumer loans could also have been pre-emptive ahead of the largely anticipated US Federal Reserve rate hike in September 2026, which could translate to higher domestic interest rates, including Singapore Overnight Rate Average (SORA).

Singapore deposits grew 0.6% month on month and 6.6% year on year in August.

Year to date, system loans increased by about $80.3b, compared with $95.1b growth in deposits, bringing the loan-to-deposit ratio to 71.6% in August from 67.7% at end-2025.

The faster growth in loans than deposits supports NII growth, whilst average SORA increased 14 basis points quarter on quarter to about 1.21% in 3Q26.

However, CGS International expects competition for higher-quality loans to continue weighing on NIM in 3Q26F.

Following the US Federal Reserve’s 25-basis-point rate hike in September, SORA rose to about 1.5% on 25 September before easing to about 1.4% on 28–29 September.

DBS had previously said its larger proportion of US dollar funding compared with US dollar assets would leave it negatively affected by US rate increases if SORA does not rise proportionately. It said a 1-basis-point increase in US interest rates would reduce its NII by $4m.

Near-term upside risks include a sustained recovery in SORA that lifts NIMs and NII, as well as stronger-than-expected fee income.

Downside risks include weaker macroeconomic conditions resulting in higher credit costs, slower wealth and capital inflows suppressing fee growth, and weaker investor sentiment affecting trading income across Singapore banks.