Expect more opportunities for capital returns, even after 1-for-10 bonus issue: DBS CEO

DBS chief executive Piyush Gupta expects that there will be more opportunities to return capital to shareholders, given the bank’s ample excess capital.

This was even as the bank has proposed to raise dividend payouts and issue bonus shares to increase the pace of capital returns to its shareholders, in its fourth-quarter results released on Wednesday (Feb 7).

Gupta said at a media briefing on the results: “We decided to go for a bonus issue just because it gives certainty into the future. It builds it into the base, and gives some confidence that this dividend will be there.”

DBS proposed a final dividend of 54 Singapore cents per share for Q4, up six cents from the previous payout.

It also proposed a bonus issue of one bonus share for every existing 10 ordinary shares held. The bonus shares will qualify for dividends, starting with the first-quarter 2024 interim dividend.

Gupta noted that the bank’s capital adequacy ratio – the ratio of a bank’s capital to its risk-weighted assets – is still strong after the proposed bonus issue and rise in dividend payouts.

The bank’s total capital adequacy ratio stood at 16.1 per cent as at end-December 2023. The Common Equity Tier-1 (CET-1) ratio stood at 14.6 per cent at that point. This was up from the bank’s capital adequacy ratio of 15.9 per cent as at end-September 2023, when the CET-1 ratio stood at 14.1 per cent.

The bank’s leverage ratio was at 6.6 per cent as at end December, from 6.4 per cent at the end of September.

Shares of DBS were up post-announcement.

As at 10.16 am, the counter climbed S$0.90 or 2.8 per cent amid brisk trading with 4.2 million shares changing hands – well above its 3.8-million volume average.

ShareInvestor data reported that one married deal took place at 10.10 am, with 40,000 shares changing hands at S$32.495 apiece. The counter then moved to S$32.51, up S$0.86 or 2.7 per cent, as at 10.52 am.

The other two banks were trading higher as well, with OCBC adding S$0.18 or 1.4 per cent to S$12.96. UOB gained S$0.22 or 0.8 per cent to S$28.39. 

Citi analyst Tan Yong Hong expected a positive market reaction on the bonus issue, as investors likely prefer this over a one-off special DPS.

With a decline in loans and risk-weighted assets, Tan expects DBS can afford to be more aggressive with excess-capital distributions.

Yeap Jun Rong, market analyst at online trading platform IG, said that this marked a second dividend increase for the bank over the past year. Such a move “may signal some confidence” for DBS’ longer-term prospects in view of the bank’s strong balance sheet and capital position, he added.

Even with the new initiatives for Q4, Gupta said that the bank will still be targeting a step-up of S$0.24 dividend per share per year, with the opportunity to “do more specials” or other forms of payback on top of that.

“We recognise that even after this, we still hold a lot of capital,” he added, noting that this would be the case especially with the new Basel IV capital regime expected to kick in on Jul 1.

“Even after returning excess capital through bonus and other dividends, we would have enough for our growth, and frankly, enough to even do more mergers and acquisitions (M&As),” Gupta said.

He expects greater confidence on dividend payouts towards the middle of the year, when the bank has a better line of sight on the interest-rate trajectory, and when it has the tech uplift programme behind it.

The annualised ordinary dividend will be S$2.16 per share over the enlarged share base, up 24 per cent increase from the S$1.92 per share for 2023.

Based on the closing share price on Feb 6, the post-bonus annualised dividend yield would be 7.5 per cent.

Yeap noted that the forward dividend yield of 7.5 per cent “towered” above UOB and OCBC’s 6 per cent, which would leave expectations for the other two banks to follow in DBS’ footsteps.

While the analyst acknowledged that DBS remains the priciest among its peers, he said this “can be somewhat justifiable” by the bank’s profitability, operational efficiency and highest return on equity among the trio.

Shares of DBS rose 2.5 per cent or S$0.80 higher on Wednesday to close at S$32.45.