Singapore banks benefit from safe-haven flows amidst Middle East conflict

Investors are shifting assets to the city-state for stability and protection.

Singapore’s major banks are emerging as indirect beneficiaries of heightened geopolitical tensions in the Middle East, as global investors and high-net-worth individuals increasingly shift assets toward politically neutral, well-regulated financial hubs, according to a UOB report.

“Heightened geopolitical uncertainties have reinforced Singapore’s safe-haven appeal, driving deposit growth and wealth management inflows into local banks,” the report said.

UOB said that uncertainty linked to the Middle East conflict is supporting liquidity flows into Singapore, particularly from Middle East-based clients reallocating assets away from perceived higher-risk jurisdictions such as Dubai.

These inflows are strengthening private banking franchises and boosting fee-based income from wealth management, treasury services, and trading, it added.

Singapore’s interest rate environment remains stable, with three-month compounded SORA easing slightly to around 1.03% and moving sideways. The US Federal Reserve is expected to pause rate cuts in 2026 at around 3.5%, reflecting continued global uncertainty.

Despite lower rates, earnings across banks remain resilient. Fee and treasury income growth is offsetting softer net interest income, supported by stronger wealth management flows.

Combined data from DBS Group Holdings, Oversea-Chinese Banking Corp, and United Overseas Bank show non-interest income rising to $5.16b in 1Q26, driven by wealth management, trading, and fee income, as per latest data from SGX.

Wealth management flows were a key contributor across all three banks, reflecting sustained investor demand for diversified and defensive asset allocation.

At the same time, combined net interest income remains above $8b for the 14th consecutive quarter, highlighting underlying stability despite rate headwinds.

Whilst net interest income has eased slightly due to lower regional benchmark rates, banks have mitigated the impact through active balance sheet management, including deposit cost optimisation, hedging, and asset repricing, SGX said.

Loan growth across the sector remained mid-single-digit year-on-year, supported by both retail and corporate lending. Asset quality also remained stable, with non-performing loan ratios broadly unchanged across the three banks and credit buffers remaining strong.

SGX data also showed the increasing dominance of Singapore’s banking trio within the Straits Times Index (STI), with combined weight rising to more than 50% in recent years, alongside strong long-term total shareholder returns averaging about 175% since 2019.