Finance News

Singapore's prime financial institution shares fall after regulators restrict dividend payouts for 2020

ATMs of the three banks listed in Singapore: OCBC, DBS and UOB.

Munshi Ahmed | Bloomberg | Getty Images

Shares in the three largest banks in Singapore fell on Thursday after the country's financial regulator urged lenders to limit dividends this year given the economic uncertainty that was partly due to the coronavirus pandemic.

The country's second largest bank, Oversea-Chinese Banking Corp, suffered the largest loss after ending the day at 3.82% less than the previous day. Peers DBS Group Holdings and United Overseas Bank declined 3.09% and 3.15% respectively at the close.

The three banks make up around a third of the Straits Times benchmark index, which fell 1.7% on Thursday.

The country's financial regulator and central bank, the Monetary Authority of Singapore, urged banks on Wednesday to limit their total dividend per share this year to 60% of the previous year.

Lenders can also offer shareholders the option to receive dividends in the form of additional shares instead of cash.

Investors need to take into account the strong capital positions … the central bank's usual caution and the fact that the 60% cap is not as strict as the restrictions in some other countries.

Krishna Guha

Jefferies stock analyst

The MAS announcement followed similarly – and comparatively Stricter – Actions by other financial regulators around the world. The Bank of England urged banks to cut dividends this year, while the Australian financial watcher recommended banks and insurers pay less than half of their earnings to shareholders for the rest of 2020.

The Singapore regulator said the dividend restrictions are a preventive measure. It added that stress tests showed that local banks remain resilient even under "adverse conditions that are compatible with a severe and sustained public health crisis.

The country is one of the most coronavirus-affected countries in Southeast Asia. According to the Ministry of Health, Singapore reported over 51,500 cases and 27 deaths on Wednesday.

The economy is expected to shrink by 4 to 7% this year – the worst recession in the country since independence in 1965.

"MAS wants to make sure that banks' capital buffers remain large enough to sustain lending to the economy, given significant uncertainties," said Ravi Menon, CEO of MAS.

Jefferies equity analyst Krishna Guha said in a Thursday announcement that the dividend ceiling is likely to weigh on investor sentiment.

"However, investors need to take into account the strong capital positions … the central bank's usual caution and the fact that the 60% cap is not as strict as the restrictions in some other countries," he said.

Related Articles