Banks can strengthen their liquidity-coverage ratios (LCR) by diversifying funding sources, strategically managing high-quality liquid assets (HQLA) and employing advanced treasury practices. A resilient HQLA portfolio requires a balanced mix of assets across maturities, types, currencies and issuers, while monitoring concentration risks to avoid market-specific shocks.
Asset selection should consider not just yield but also market depth, price volatility and eligibility for use in central-bank operations.
Balancing level 1 and level 2 assets is key: level 1 offers superior liquidity but lower returns, while level 2 enhances yield but comes with regulatory haircuts. The ideal mix depends on each bank's risk profile and funding model.
Singapore banks' liquidity profiles are best placed among Asean peers to endure market volatility in 2H2025, supported by diversified funding, strong liquidity coverage and advanced treasury strategies. Strategic deposit repricing and targeted acquisition of low-cost, high-quality deposits bolster their margin resilience against likely rate cuts.
1. Funding pain eases as Casa deposits pick up
Singapore banks' current and savings account (CASA) ratios look set to rise further in 2H as higher-interest fixed deposits mature and funds get moved back to CASA. The lenders may also gain from safe-haven deposit inflows since Singapore's safe-haven appeal is rising as investors seek respite from the volatility unleashed by US tariffs.
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Meanwhile, the banks' funding costs are set to ease toward the end of the year amid their efforts to ramp up deposit-cost management with interest-rate cuts expected.
UOB's CASA deposits have seen the biggest gains among peers, hitting 55.1% in 1Q2025, while OCBC's ratio lagged peers at 48.9%. The lenders might continue attracting low-cost deposits via transactional banking franchises to protect their interest margins as interest rates fall.
2. Local-, foreign-currency liquidity ample
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Singapore banks' all-currency liquidity coverage ratios and net stable funding ratios, averaging 140% and 115% as of 1Q2025, surpass regulatory requirements of 100%, reflecting the banks' ability to manage foreign-currency funding and liquidity risks well amid heightened market volatility amid tariff uncertainties, as well as interest-rate and growth concerns.
The lenders' foreign-currency loan-to-deposit ratios were well below 100% as of 4Q2024, signalling ample liquidity to support business operations with a low reliance on confidence-sensitive wholesale funding.
3. Strategic focus in funding strategy
Singapore banks can prioritise containing funding costs to sustain interest margins as interest rates fall in the long term. Strategies include repricing costlier fixed deposits, using domestic funding in key markets instead of forex swaps, and acquiring stickier corporate working-capital accounts and corporations' low-cost deposits by boosting transaction-banking capabilities.
With an outlook for ample liquidity and modest loan demand in 2H2025, banks are likely to reassess customer-acquisition strategies by focusing on less interest-rate sensitive customers and using tiered rate structures to attract high-quality deposits that provide sustainability and lower funding costs.
Both UOB and OCBC have cut rates for savings accounts to help reduce funding costs in response to margin pressures. DBS could follow suit soon.
4. Banks are rebuilding their safe liquidity nets
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Banks can strengthen their liquidity-coverage ratios (LCR) by diversifying funding sources, strategically managing high-quality liquid assets (HQLA) and employing advanced treasury practices.
A resilient HQLA portfolio requires a balanced mix of assets across maturities, types, currencies and issuers, while monitoring concentration risks to avoid market-specific shocks.
Asset selection should consider not just yield but also market depth, price volatility and eligibility for use in central-bank operations.
Balancing level 1 and level 2 assets is key: level 1 offers superior liquidity but lower returns, while level 2 enhances yield but comes with regulatory haircuts. The ideal mix depends on each bank's risk profile and funding model.
