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MAS calls on local banks to cap FY20 dividends at 60% of previous year's

THE Monetary Authority of Singapore (MAS) on Wednesday called on local banks to cap their total dividends per share (DPS) for FY2020 at 60 per cent of the amount in the previous financial year, in a move to shore up capital amid the uncertain economic climate.

Shareholders should also be offered the option of receiving the dividends to be paid for FY2020 in scrip in lieu of cash, said MAS in a statement.

“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 our economy."

While MAS’ stress tests have shown that local banks are remaining resilient under adverse conditions on the back of Covid-19, it would be "prudent" for local banks to put aside a greater portion of earnings during this period, given the substantial uncertainties ahead and that global economies are not yet showing sustained signs of recovery. 

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 come on the horizon.

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The 60 per cent cap on FY2020 dividends “balances the objective of capital conservation with the interests of shareholders”, said MAS.

If a bank has already paid out interim dividends for Q1 2020, the dividend restrictions and the offering of dividends in scrip will be extended for an additional quarter until Q1 2021. The 60 per cent cap will apply to the revised period, but still reference FY2019.

For Singapore's largest lender DBS, this cap restricts its cumulative dividends to 72 Singapore cents per share for the next four quarters from Q2 2020, or 18 cents per quarter, with all dividends subject to board approval. Currently, DBS pays an absolute DPS of 33 cents per quarter. 

A DBS spokesperson said: "We view MAS' restriction capping local banks’ 2020 dividends at 60 per cent of 2019 levels as a pre-emptive measure that is consistent with its well-known customary prudence. At the same time, 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 distribution.

"DBS’ capital and liquidity are well above regulatory requirements, and its balance sheet has also been fortified by high levels of allowance reserves. It is in a strong position to support business and individual customers during a prolonged period of uncertainty."

OCBC chief executive officer Samuel Tsien said the bank will "heed the call" by MAS on restrictions placed on its total dividend payout for FY2020. 

"OCBC has a strong capital, funding and liquidity position and is well-placed to weather the current severe global economic crisis due to the Covid-19 pandemic. 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," he said.

The bank's dividend payout ratio for FY2019 stood at 47 per cent, and 40 per cent in FY2018. It also made “extensive” use of the scrip dividend scheme in recent years to support capital, said Citi analyst Robert Kong. OCBC’s historical scrip dividend offers a 10 per cent discount. 

UOB group chief financial officer Lee Wai Fai said the bank supports MAS' precautionary move. "UOB remains well-capitalised and are confident of our ability to ride through the Covid-19 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.”

UOB has a dividend payout ratio policy of about 50 per cent of earnings, subject to a minimum CET1 ratio of 13.5 per cent and sustainable outlook. 

In April, MAS had urged banks to ensure that sustained lending took priority over discretionary distributions, but had said that it did not “see a need to restrict banks’ dividend policies”.

Ravi Menon, managing director of MAS said: “We are fortunate that banks in Singapore entered the Covid-19 pandemic with strong capital positions. All the same, MAS wants to ensure the banks’ capital buffers remain ample in the face of significant uncertainties ahead, so that they can sustain lending to the economy.”

“We have carefully calibrated the restriction on dividends, taking into account the needs of investors who may rely on this income,” he added.

Financial regulators elsewhere, such as in the UK, have asked lenders to suspend dividends in light of the Covid-19 pandemic, which has triggered outrage by investors. HSBC and Standard Chartered were among some of the banks that were affected.

DBS and UOB will report their Q2 earnings and interim dividends on Aug 6, while OCBC will wrap up the Q2 results season on Aug 7.

On Wednesday, DBS shares fell 10 cents to S$20.40, OCBC shares ended 7 cents lower at S$8.90, and UOB shares were down 9 cents to S$20.02. 

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