Singapore asks banks to restrict dividends, conserve capital

SINGAPORE: Singapore’s central bank has asked locally incorporated lenders to cap their 2020 dividends at 60% of last year’s levels, to ensure a sufficient flow of loans as they confront the downturn triggered by the pandemic.

The Monetary Authority of Singapore wants to “ensure the banks’ capital buffers remain ample in the face of significant uncertainties ahead, so they can sustain lending to the economy,” MAS Managing Director Ravi Menon said Wednesday in a statement.

The MAS said its stress tests have showed that the local banks remain resilient, and it made the request as a pre-emptive measure.

It asked the Singapore banks to offer shareholders the option of receiving 2020 dividends in scrip in lieu of cash.

Other central banks including the Federal Reserve, the Bank of England and the European Central Bank have already announced curbs on their banks’ dividend payments.

A move by the MAS had been expected since Menon told a media briefing earlier this month that the MAS was in talks with the banks on their capital management.

“If no limit was imposed, the Singaporean banks would stand out among the few globally,” said Kevin Kwek, an analyst at Sanford C Bernstein in Singapore.

“Nevertheless, it takes away one reason to own the stocks in the face of low-interest rates and I expect the stocks will suffer from knee-jerk selling.”

Banks react

Singapore’s largest bank, DBS Group Holdings Ltd, is due to report its second-quarter results on Aug 6, together with United Overseas Bank Ltd Oversea-Chinese Banking Corp will report the following day.

OCBC plans to heed the MAS’ request, according to Chief Executive Officer Samuel Tsien.

“With worsening economic conditions as well as significant uncertainties over how the crisis will evolve, it is only prudent for us to conserve and build up our capital to support our customers during this very difficult period,” he said in an emailed statement.

In a statement to the Singapore bourse, DBS said it expects to cap its dividend at a total of S$0.18 per share per quarter over the next four quarters, or S$0.72 per share total.

The 60% cap “recognises the interests of shareholders as it is not as severe as the restrictions in some other jurisdictions, which include an outright halt to distributions,” a DBS spokesman said by email.