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MAS calls on banks to cap dividends for FY20 to 60% of FY19

Lim Hui Jie
Lim Hui Jie7/29/2020 06:40 PM GMT+08  • 3 min read
MAS calls on banks to cap dividends for FY20 to 60% of FY19
Shareholders of locally-incorporated banks headquartered in Singapore will receive lower dividends this year, after MAS called on banks to cap FY20 dividends to 60% of FY19 dividends.
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DBS, OCBC and UOB shareholders will receive lower dividends for this year, after the Monetary Authority of Singapore (MAS) calls on the local banks to cap their dividend payout to 60% of what was paid for FY2019.

While the local banks’ capital positions are strong, the dividend restrictions are a pre-emptive measure to bolster their resilience and capacity to support lending to businesses and individuals through an uncertain period ahead for Singapore’s economy, said MAS in its July 29 statement.

MAS is suggesting that banks can consider giving shareholders the option of receiving scrip instead of cash.

In April, MAS had encouraged banks in Singapore to ensure that sustained lending took priority over discretionary distributions.

MAS pointed out local banks have built up strong capital positions over the years and are well-placed to weather the risks and uncertainties ahead, and said its stress tests have shown they remain resilient even under adverse conditions consistent with a serious and prolonged public health crisis.

Nonetheless, given the substantial uncertainties ahead and that global economies are not yet showing sustained signs of recovery, it would be prudent for local banks to put aside a greater portion of earnings during this period.

See also: HSBC urges shareholders to vote against push to rejig structure

MAS said this will bolster the local banks’ ability to continue to support the credit needs of businesses and consumers, as well as absorb economic shocks should a more adverse scenario materialise.

The government expects Singapore's GDP this year to contract between 4 and 7%.

MAS is encouraging banks to conserve and carefully manage their capital by exercising restraint in discretionary expenditure and management compensation, and that the 60% cap on dividends balances the objective of capital conservation with the interests of shareholders.

See also: UBS’s Khan vows retention plans for Credit Suisse Asia staff

DBS Bank and UOB will report their 2Q earnings on August 6, and OCBC the following day. DBS now has a quarterly dividend payout policy, while UOB and OCBC pay every half-yearly.

For FY2019, DBS paid a total of $1.23 per share; UOB paid $1.30 per share and OCBC, 53 cents.

The three local banks do not give shareholders outstanding capital appreciation but they are popular among investors for their relatively generous dividends of around 5%.

The local banks, in response to MAS' statement, recognise the uncertain times caused by Covid-19 and therefore the need to be more conservative. However, they maintain that they are well-capitalised above regulatory requirements.

"However, 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 and position OCBC to grow when the Covid-19 virus subsides," said OCBC group CEO Samuel Tsien, adding that the bank will heed MAS' call.

Similarly, UOB will support MAS' precautionary move, said group CFO Lee Wai Fai.

"UOB remains well-capitalised and are confident of our ability to ride through the COVID pandemic. We will continue to maintain a strong balance sheet in support of our customers and to sustain our investments in our franchise and capabilities," he said.

DBS, in response, maintains that dividends are subject to the approval of its board. It views MAS' move as a pre-emptive measure "consistent with its well-known customary prudence", and that the 60% cap isn't as "severe" as other jurisdictions have imposed, said a spokesperson.

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