Singapore’s non-bank financial institutions (NBFIs) have grown rapidly to become a critical component of the financial system. As of March 2026, NBFIs accounted for approximately 16% of banking system assets and 18% of banks’ total liabilities. Their assets grew 9.7% in 2024 alone, representing 20% of total financial system assets. This growth brings both opportunity and risk—and MAS is watching closely.
The Leverage Question
The IMF’s 2026 Article IV Consultation for Singapore highlighted a concerning trend: hedge fund gross leverage ratios doubled from 6.9 times net asset value in 2022 to 12.5 times in 2024. Investment funds have also increased their exposure and leverage in over-the-counter derivative markets. While private credit funds currently constitute just 1% of assets under management by investment and trust funds domiciled in Singapore, their growth trajectory warrants monitoring.
MAS’ 2025 stress test revealed that most authorized investment funds would be able to meet redemptions even under a severe redemption shock. However, a small number of fixed-income funds—accounting for 3.8% of total net assets—could face liquidity shortages in extreme scenarios. This finding underscores the importance of ongoing monitoring and the need for funds to maintain adequate cash buffers.
Interconnectedness: The Hidden Risk Channel
The interdependence between NBFIs and banks creates channels for risk transmission that may not be immediately apparent. NBFIs represent about 16% of banking system assets and 18% of banks’ total liabilities. Investment funds and trust companies have been the primary drivers of NBFI asset growth.
This interconnectedness means that stress in the NBFI sector—whether from a sudden redemption wave, a leveraged position unwind, or a deterioration in private credit quality—can rapidly propagate to the banking sector. The IMF noted that NBFIs’ exposure and leverage in OTC derivative markets have been increasing over time, adding another layer of complexity to risk assessment.
The Three-Channel Risk Framework
The IMF’s 2026 consultation identified three primary channels through which emerging risks could impact Singapore’s financial sector:
Geopolitical Tensions: A re-escalation of Middle East conflict would disrupt commodity markets and supply chains, impacting domestic systemically important banks’ domestic and cross-border exposures to corporates—particularly in manufacturing, wholesale trade, and utilities.
Global AI Bust: A potential correction in AI-linked assets could negatively affect banks and NBFIs through their domestic and cross-border exposure tied to AI-linked firms and data center investment. Given Singapore’s growing role as a regional data center hub, this channel is particularly relevant.
US Tariff Escalation: Increased US tariffs could reduce corporate revenues, with IMF stress testing showing that under a scenario combining tariff-related shocks and a 100 basis point interest rate rise, about 25% of listed corporations could see interest coverage ratios below one or negative cash flow. The debt held by these corporates accounts for 12% of total corporate debt.
Macroprudential Settings: Tight but Appropriate
The IMF assessed that Singapore’s macroprudential settings remain appropriate given narrowing credit gaps, contained systemic risks from the housing market, and heightened uncertainty. The negative credit gap is expected to close gradually as credit growth slows due to reduced activities in energy-dependent sectors amid tightening financial conditions.
However, the IMF recommended that authorities stay flexible with adjusting settings to address shifts in the housing market. Expanding public housing supply and closely monitoring the interaction between public and private housing markets remain key to addressing structural imbalances.
The NBFI Monitoring Imperative
For MAS and financial institutions alike, the NBFI sector requires continued vigilance. The traditional regulatory perimeter focused on banks is insufficient when non-bank entities hold 20% of financial system assets and are deeply interconnected with the banking sector. The 2026 framework—encompassing AI risk management, liquidity guidelines, third-party risk management, and updated operational risk standards—represents a comprehensive response to this evolving risk landscape.
As Singapore’s financial system continues to evolve, the ability to monitor, assess, and mitigate risks across both bank and non-bank channels will determine the city-state’s continued standing as a global financial hub.
