Home Blue Chips MAS Calls on Local Banks to Limit Their Dividend Payments

MAS Calls on Local Banks to Limit Their Dividend Payments

What’s up?

In a surprise announcement, the Monetary Authority Singapore (MAS), Singapore’s central bank, has called on the local banks to cap their dividend payments for this year.

MAS’ recommendation is for banks to pay out a maximum of 60% of the total dividend per share paid out in the fiscal year 2019.

At the same time, banks were urged to offer shareholders the option of scrip dividends to conserve even more cash.

MAS’ move comes as a pre-emptive measure to bolster the banks’ reserves and enable them to be in a better position to support lending to businesses and individuals who have been adversely impacted by the pandemic.

The move is done in the name of prudence, as COVID-19 continues to infect numerous people around the globe with no signs of slowing down.

As such, the central bank is encouraging banks to carefully manage their capital in case a more adverse scenario emerges.

At the same time, Ravi Menon, the managing director of MAS, has also recognised the need for banks to pay out a certain level of dividends to supplement the income of investors who rely on it.

So what?

As all the local banks are under the purview of the central bank, they would have to adhere to its recommendations and put a cap on their dividends for this year.

The three local banks are DBS Group Holdings Ltd (SGX: D05), United Overseas Bank Limited (SGX: U11) and OCBC Ltd (SGX: O39).

As a recap, DBS paid out a quarterly dividend of S$0.33 in the first quarter of 2020. This means that annualised, the annual dividend should amount to S$1.32.

UOB paid out a total dividend of S$1.30 last year, while OCBC’s full-year 2019 dividend stood at S$0.53.

A reduction of 40% from last year’s dividend level means that DBS can pay out a maximum of S$0.79, UOB can pay out a maximum of S$0.78 while OCBC has to cap its current year dividend at S$0.318.

Now what?

Shortly after the MAS announcement was made, DBS released a statement stating that the cap restricts its cumulative dividends to S$0.72 for the next four quarters starting from the second quarter of 2020.

The other two banks have yet to formally announce their dividend caps but are likely to do so very soon.

Assuming the local banks pay out the maximum allowable dividends for this year, DBS’ dividend yield will fall to 3.5%. UOB’s dividend yield will be reduced to 3.9%, while OCBC’s dividend yield will stand at 3.6%.

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Disclaimer: Chin Hui Leong owns shares in DBS Group Holdings Ltd, United Overseas Bank Limited and OCBC Ltd.