Global financial stability risks remain elevated. Key vulnerabilities are the growing reliance on AI-driven growth and investment, continued global dependence on energy flows through the Strait of Hormuz and rising sovereign indebtedness. These leave the global financial system more sensitive to shocks. A reassessment of AI profitability, intensification of Middle East conflict or escalating trade tariffs, could induce a retrenchment in investment, raise input costs, weaken business sentiments, and tighten financial conditions which could trigger broader cross-market corrections. High sovereign debt levels further constrain policy flexibility and could amplify stresses in core funding markets. Consequently, policymakers globally face complex trade-offs balancing price and financial stability, amid eroding fiscal capacity.
Singapore’s financial system has remained stable amid heightened external volatility. Singapore banks continue to diversify their exposures and maintain strong capital and liquidity positions. Results from the Industry-Wide Stress Test 2025 affirmed that domestic systemically important banks are resilient to severe and sustained macrofinancial shocks, including a global recession. The insurance industry remains well-capitalised, while investment funds have managed liquidity risks effectively, with adequate buffers to meet margin calls and redemption requests. Singapore’s foreign exchange and money markets continue to function normally. MAS continues to emphasise the importance of robust risk management and having strong buffers in financial institutions amid elevated uncertainty and volatility.
MAS’ stress tests suggest that most firms and households would have sufficient capacity to weather cost pressures arising from higher energy prices. Over the past year, corporates’ financial positions have improved on the back of resilient earnings, healthy liquidity buffers and a more accommodative domestic financing environment. Households remain supported by stable income growth and resilient employment outcomes and should exercise prudence in taking on debt given the uncertainty ahead. Both corporate and households non-performing loans have remained low at 1.3% and 0.4% respectively.