• MAS is placing restrictions on dividend payments by banks here
• It is a pre-emptive measure to bolster the banks’ capacity to support lending, it said
• Banks should offer shareholders the option of receiving the dividends in shares instead of cash
• OCBC, UOB and DBS said that they will follow MAS’ directive

SINGAPORE — Mirroring similar moves by monetary authorities in the United States and Europe, Singapore’s central bank is calling on banks incorporated here to limit their dividend payments to shareholders this financial year, the first time it has done so. 

This is to ensure that they have enough capital and can buffer their capacity to offer loans during the economic fallout from the Covid-19 crisis.

In a statement on Wednesday (July 29), the Monetary Authority of Singapore (MAS) urged the banks to cap their total dividends per share for financial year 2020 at 60 per cent of the amount paid out in the previous financial year.

“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,” MAS said of the banks that include DBS, OCBC and United Overseas Bank (UOB).

It added that these three banks have agreed to the move, and that other countries have also taken similar pre-emptive measures.

Earlier in April, it had already encouraged banks here to ensure that “sustained lending took priority over discretionary distributions”, it added.

Singapore is in a technical recession after its economy contracted 41.2 per cent in the second quarter of the year and economists have said that job losses and wage cuts are set to continue.

MAS said that banks should offer shareholders the option of receiving the dividends in scrip or shares — instead of getting payments in cash. 

If a bank has already paid out interim dividends for this financial year, the dividend restrictions and the offering of dividends in shares will be extended for another quarter until the first quarter of the next financial year.

Mr Ravi Menon, managing director of MAS, said that the authority had “carefully calibrated the restriction on dividends, by taking into account the needs of investors who may rely on this income”. 

MAS also said that the 60 per cent cap “balances the objective of capital conservation with the interests of shareholders”.

It added that the dividend cap will bolster the banks’ ability to continue to support the credit needs of businesses and consumers and also absorb economic shocks “should a more adverse scenario materialise”.

BEING PRUDENT

The central bank said that its stress tests have shown that banks here have remained resilient even under adverse conditions such as a 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.”

It is encouraging the banks to conserve and carefully manage their capital, by exercising restraint in discretionary spending and in their compensation to their management.

Responding to the announcement, OCBC’s group chief executive officer Samuel Tsien said that the bank would heed the call by MAS. 

“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,” he said.  

He added that with the uncertainties brought by Covid-19, 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”. 

Mr Lee Wai Fai, the group chief financial officer of UOB, said that it also supports MAS' precautionary move.

“UOB remains well-capitalised and are confident of our ability to ride through the 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.”

A DBS spokesperson said that the bank views the restrictions by MAS as a pre-emptive measure that is “consistent with its well-known customary prudence”.

The cap will restrict DBS’ cumulative dividends to 72 cents per share for the next four quarters starting from the second quarter of 2020, or 18 cents per quarter. 

“As is the normal practice, all dividends are subject to board approval,” the spokesperson said.

“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.”