Though their CET1 ratio is at least 6% above the 9% regulatory minimum as of 2Q2025 on a pre-fully loaded final Basel III rules basis, their buffers are lower on a total capital basis, showing a lack of debt used. Singapore's regulator broadly follows global guidelines, allowing banks to issue additional Tier-1 debt for up to 1.5% of risk-weighted assets, and Tier-2 debt for up to 2%.
Singapore's capital-rich banks, backed by healthy earnings and risk profiles, could take advantage of retreating interest rates to issue debt to replace costlier equity. Falling rates allow lenders to optimise their capital structures at lower cost to lift shareholder returns while maintaining buffers. Collective capital bond issuance of US$13 billion is needed in 2026 to fully optimise.
Amid expectations of rate cuts, capital-rich Singapore banks can optimize their capital structures by issuing debt rather than relying mostly on costly Common Equity Tier 1 (CET1) buffers to meet regulatory hurdles. This may allow them to swap CET1 capital with cheaper, subordinated debt, returning equity to shareholders via share buybacks or higher dividends, but with mixed credit implications.
