Singapore banks test way to free up lending capacity

Most Southeast Asian lenders have little need to follow, says S&P Global.

Banks and regulators across Southeast Asia are unlikely to adopt a financing tool that lets banks pass part of their loan risk to outside investors, although a market expert said it could prove useful during future economic shocks.

So-called significant risk transfers allow banks to move part of the risk tied to a group of loans without selling the loans themselves.

By doing so, they can free up capital that can be used to support future lending, Ivan Tan, director at S&P Global Ratings Singapore Pte. Ltd., told Asian Banking & Finance. “I believe there is no immediate urgency at this point.”

The financing tool emerged in Europe in the late 1990s and remains concentrated there. Europe accounts for about 60% to 70% of global issuance, whilst the US makes up most of the remainder, according to a 2026 CFA Institute report.

Singapore has started to see limited adoption. DBS Bank Ltd., Southeast Asia's biggest bank by assets, completed its first transaction using the structure in June, covering $1b of corporate loans.

Sumitomo Mitsui Banking Corporation's Asia-Pacific unit completed a similar deal involving $3.2b of project finance loans in late 2025.

Even so, Tan expects adoption elsewhere in Southeast Asia to remain gradual because most banks already have ample capital or other ways to raise funds.

Instead, he sees the structure as an additional option that financial institutions can utilize to reduce concentration risks in their portfolio.

"If you look at the past five years, there was a lot of uncertainty stemming from external headwinds and geopolitical uncertainties," Tan said, pointing to the COVID-19 pandemic, trade tariffs and the recent Middle East war.

Export-dependent economies in Southeast Asia are often affected even when disruptions originate elsewhere, he said.

Tan said the arrangement could be more useful in countries where banks are expanding lending quickly but have less capital to support this growth, citing Vietnam as an example.

However, Vietnam is focused on strengthening its banking rules to meet international standards rather than introducing this type of financing framework, he said.

Markets with more developed banking regulations, including Singapore, Malaysia, and the Philippines, may show greater interest over time.

Still, Tan noted that many banks in Singapore and Thailand are already well-capitalized and are returning excess funds to shareholders instead.

He added that any country considering the framework must ensure investors clearly understand the risks involved. “For an investor to be comfortable investing, they need to know what they are buying,” Tan said.