A sharp pullback in artificial intelligence (AI)-related investment and a reassessment of AI asset valuations could weigh on Singapore’s corporate earnings, household incomes and financial stability, the Monetary Authority of Singapore (MAS) said on Tuesday.
MAS said its latest Financial Stability Review that a sudden reassessment of AI-related growth and earnings prospects could trigger a retrenchment in AI investment, affecting revenues and earnings among companies exposed to the AI supply chain.
The risk comes against a backdrop of heightened geopolitical tensions and elevated energy prices, which have already increased input costs for businesses and placed some pressure on household budgets.
Despite these challenges, corporate balance sheets in Singapore remain generally sound, MAS said.
To assess the resilience of listed companies, MAS conducted a stress test involving a sharp pullback in AI-related investment and revenue losses across the AI supply chain, alongside heightened geopolitical tensions.
Singapore-listed companies were subjected to severe revenue shocks of up to 30 percent and interest rate shocks of up to 400 basis points to reflect wider credit spreads under stressed conditions.
Most companies were able to withstand the shocks, supported by their earnings and cash reserves. However, 32 percent of firms were assessed as being at risk under the severe scenario, accounting for 16 percent of overall corporate debt.
The increase in at-risk companies was concentrated among highly leveraged and capital-intensive firms, as well as businesses reliant on working capital financing. Smaller companies also accounted for a disproportionate share of firms assessed as vulnerable, reflecting lower profit margins and thinner cash buffers.
MAS said these companies should manage their debt obligations prudently and maintain adequate liquidity buffers to withstand potential financial stress.
The potential AI downturn could also affect households if weaker global growth and business investment translate into lower incomes and employment.
MAS’ latest household stress test assessed resilience to a sharp global AI-related downturn, assuming household income falls by about 10 percent and resident unemployment rises. Mortgage rates on loans from financial institutions were also increased by 200 basis points to reflect tighter financial conditions.
The results showed that a significant majority of household borrowers would be able to manage income and employment shocks alongside higher debt-servicing costs.
However, about 1 percent of borrowers could face negative cash flows under the stress scenario, with existing savings buffers covering fewer than six months of the resulting income shortfall.
These vulnerable borrowers were mainly middle-aged Housing and Development Board residents with relatively lower incomes, alongside a smaller group of middle-income borrowers with sizeable outstanding private housing loans, MAS said.
The central bank advised households to remain cautious about taking on additional debt and to maintain adequate liquidity buffers amid an uncertain macroeconomic outlook and the possibility of higher borrowing costs.
Singapore’s banking sector is also expected to remain resilient, although asset quality could come under pressure if an AI-led downturn, renewed trade tensions or another energy shock weakens economic activity.
MAS said credit risk was expected to remain under control, with the special mention ratio remaining low at 2.2 percent as of the second quarter of 2026.
Its top-down solvency stress test found that Singapore’s domestic systemically important banks had sufficient capital buffers to withstand an adverse scenario involving a downturn in the AI-led global growth cycle and heightened geopolitical tensions.
Under the adverse scenario, an abrupt reassessment of AI-related growth and earnings prospects triggers global financial stress, including sharp asset revaluations and significant declines in global equities, particularly in markets more exposed to the AI value chain.
Corporate credit spreads would also widen as risk appetite deteriorates, said MAS.
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