Singapore Banks Increase Dividends On Profit Beat, Outlook

(Bloomberg) -- Singapore banks will reward investors with higher payouts from better-than-expected earnings, just a week after the central bank lifted restrictions on dividends, marking a nascent recovery from one of their most turbulent years.

All of the city state’s top banks -- DBS Group Holdings Ltd., United Overseas Bank Ltd. and Oversea-Chinese Banking Corp. -- said they would increase dividends by an average of 15 cents per share after second-quarter profit jumped, mainly driven by lower provisions for bad loans.

DBS rounded up earnings on Thursday with a 37% rise in profit and the promise of a 33 cents per share payout. The results mark the banks’ second quarter of profit expansion after their first annual decline since 2016 when the pandemic hit commercial lenders, and brought industries from tourism to aviation to their knees. Both UOB and DBS chiefs this week struck an upbeat tone, saying they expect business momentum to pick up.

The higher dividends are “definitely more than enough to keep investors happy and that’s all reflected in their respective share price,” said Jin Rui Oh, an analyst at Mariana UFP LLP in Singapore. “This coming off MAS lifting the dividend cap is mostly indicative that the worst is over for now.”

Easing Rules

Regulators are taking the shackles off rules that required banks to keep money aside when the pandemic engulfed the world last year, allowing them to hand cash back to shareholders. Singapore’s easing of rules follow plans by major U.S. banks to raise dividends after they amassed cash piles that easily meet regulatory requirements. HSBC Holdings Plc this week said it’s speeding up its payout plans, while Standard Chartered Plc will resume interim dividends.

The Monetary Authority of Singapore last month said it wouldn’t extend restrictions on dividends from local banks after asking lenders last summer to cap their 2020 dividends at 60% of 2019 levels to maintain lending to support the economy during the pandemic. The regulator called the request a preemptive measure, as stress tests had shown that local banks remain resilient even in adverse scenarios.

Singapore banks have rallied this year, beating the Bloomberg Asia-Pacific Banks Index, reflecting optimism that lenders are emerging from the country’s worst economic contraction in decades. DBS, Southeast Asia’s largest bank, has gained 23% so far this year, while UOB and OCBC have advanced 17% and 24% respectively. Shares in DBS gained as much as 1.2% on Thursday.

“We think these lenders are on track to achieve our forecasted annualized ROE of 10-12% for fiscal 2021 as business transactions and loan growth rebound this year, amid resilient market-driven related income and materially lower provision cost.”

Bloomberg Intelligence Analyst Rena Kwok

Banks in the city state have maintained strong capital adequacy ratios despite higher levels of provisioning during the pandemic. Unlike global rivals, lenders largely maintained these higher levels of allowances for bad debts in the second quarter, instead of announcing write backs like Standard Chartered.

All three lenders “have had outstanding results, and boosting dividends is a vote of confidence,” said Joel Ng, head of research at KGI Securities (Singapore) Pte. “Given their outperformance in earnings, NPLs and loan growth,” Ng expects banks to increase dividends further.

Still, any possible asset quality deterioration may only surface in the second quarter of 2022, as various extended targeted measures across the regions expire at the end of this year, according to Bloomberg Intelligence analyst Rena Kwok. “The banks’ guidance on asset quality in the Southeast Asian region may be critical to any earnings upside surprise in the second half of this year,” she said.

Dividend payouts may remain flat through 2021 and only recover to pre-pandemic levels in 2022, according to Bloomberg’s dividend-forecasting model.

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