29/07/21

SINGAPORE: MAS lifts dividend caps on banks and financial firms.

As published on theasset.com, Thursday 29 July, 2021.

The Monetary Authority of Singapore (MAS) has lifted dividend restrictions on local banks and finance companies, noting that they have maintained strong capital adequacy ratios and the economic recovery is progressing well.

Commenting on the move, Moody’s Investors Service says the removal of the dividend caps is a sign that economic conditions in the city state have improved and the banks are well capitalized, adding that MAS action follows a similar relaxation by the European Central Bank and the US Federal Reserve in March 2021.

“Moody’s changed its outlook on the Singapore banking system to stable from negative back in March 2021, acknowledging the improving economy, banks’ earnings upside and broadly stable asset quality,” says Eugene Tarzimanov, vice president, senior credit officer, at the credit rating agency. “We expect the large Singaporean banks, DBS, OCBC and UOB, to increase dividend payments to around pre-pandemic levels of around 50% of their net income.”

In July and August 2020, at the height of the pandemic, the MAS called on local banks and finance companies to cap their total dividends per share (DPS) for FY2020 at 60% of FY2019’s DPS, and offer shareholders the option of receiving the remaining dividends to be paid for FY2020 in shares in lieu of cash.

The restrictions had been introduced to ensure that local banks and finance companies maintain strong lending capacity to support the economy throughout the pandemic, given the uncertainties at the time.

“The global economic outlook has since improved. While some uncertainties remain, Singapore’s economy is expected to continue on its recovery path, given strengthening global demand and progress in our vaccination programme,” the MAS says in a statement.

“Local banks and finance companies have maintained strong capital adequacy ratios and continued to meet the credit needs of individuals and businesses, despite higher levels of provisioning made during the pandemic.”

Under the MAS’ latest stress tests, these ratios are projected to remain resilient even under an adverse macroeconomic scenario of a stalled global recovery associated with delays in vaccine deployment and a global resurgence in the pandemic due to mutated virus strains, leading to the economy slipping again into recession in 2021, the authority notes.

Deputy managing director Ho Hern Shin adds: “As downside risks remain, local banks and finance companies should exercise continued prudence in their discretionary distributions, while prioritizing support to customers.”