MAS urges banks to cap dividends in face of economic uncertainty

Monetary Authority of Singapore also asked locally-incorporated banks to offer shareholders dividends in 2020 in the form of shares instead of cash.
Monetary Authority of Singapore also asked locally-incorporated banks to offer shareholders dividends in 2020 in the form of shares instead of cash.ST PHOTO: KUA CHEE SIONG

Singapore's central bank has asked locally incorporated lenders to cap their 2020 dividends at 60 per cent 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 (MAS) wants to "ensure the banks' capital buffers remain ample in the face of significant uncertainties ahead, so they can sustain lending to the economy", said its managing director Ravi Menon yesterday in a statement.

The MAS said its stress tests have shown 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 United States Federal Reserve, the Bank of England and the European Central Bank, have already announced curbs on their banks' dividend payments.

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

Sanford C. Bernstein analyst Kevin Kwek said: "If no limit was imposed, the Singaporean banks would stand out among the few globally.

"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."

The Republic's largest bank, DBS Group, is due to report its second-quarter results next Thursday, together with United Overseas Bank.

OCBC Bank will report the following day. According to chief executive Samuel Tsien, the bank plans to heed the MAS' request.

"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 e-mailed statement.

 
 
 

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

The 60 per cent 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.

In April, the MAS had urged banks to ensure that sustained lending took priority over discretionary distributions, but added that it did not "see a need to restrict banks' dividend policies".

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A version of this article appeared in the print edition of The Straits Times on July 30, 2020, with the headline 'MAS urges banks to cap dividends in face of economic uncertainty'. Print Edition | Subscribe