SINGAPORE - The Monetary Authority of Singapore (MAS) is conducting stress tests to assess whether it is necessary to maintain the dividend payment limits of local banks.

"We are in close discussion with the banks and will be advising them on our position very shortly," said Ms Ho Hern Shin, MAS deputy managing director for financial supervision, at the MAS Annual Report briefing on Wednesday (June 30).

Since July last year, the MAS has capped local banks' total dividends per share for financial year 2020 at 60 per cent of the previous year's dividends.

The move was aimed at ensuring that banks prioritise lending and support businesses and individuals amid the Covid-19 pandemic.

MAS managing director Ravi Menon also pointed out during the same briefing that the central bank's earlier concerns that defaults among weaker borrowers could strain banks' profitability and capital positions have not materialised.

In fact, the domestic systemically important banks started the year with strong capital positions.

While there was a slight uptick in non-performing loans, the ratio has remained largely stable at 2.4 per cent in the first quarter, added Mr Menon.

However, he said MAS recognises the risk of problem loans surfacing later in the economic cycle.

"Borrowers on full or partial loan moratoriums may not show signs of financial stress, especially if they are also obtaining financial support from the government," he said.

As support measures taper off, banks will have greater clarity about the repayment ability of their borrowers, he added.

While banks have set aside provisions against potential bad debts, MAS is still conducting additional stress tests to assess whether it is necessary to extend the current dividend restrictions on local banks and finance companies.