DBS, OCBC, UOB: What’s the forecast ahead?
IG analyst Yeap Jun Rong says that the lifting of dividend curbs ‘opens the gateway to more shareholder return’ for Singapore’s three main banks.
- DBS Group Holdings Ltd (SGX: D05) shares rose some 1.5% on Thursday (29 July 2021)
- Oversea-Chinese Banking Corp Ltd (SGX: O39) shares opened 1.7% higher
- United Overseas Bank Ltd jumped to an intraday high of S$26.21
- All three banks are scheduled to release their Q2 2021 earnings next week
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Singapore banks rally on lifting of dividend restrictions
DBS Group, OCBC Bank and UOB shares rallied as much as 1.5%, 1.7% and 1.1% respectively, a day after Singapore’s central bank lifted dividend restrictions on local banks and finance companies.
IG market strategist Yeap Jun Rong said the ending of dividend caps is a ‘validation of the banks’ balance sheets in light of improving economic conditions ahead’ as Singapore transitions toward Covid-19 becoming endemic.
‘This opens the gateway to more shareholder return, just before the banks are set to release their results next week,’ he said.
As economic recovery continues to gather momentum, a potential reversal of loan loss provisions may also ‘provide some strength to banks’ profitability’ in the upcoming quarter, Yeap added.
DBS Group is expected to release its Q2 2021 results on 05 August, while OCBC and UOB are scheduled to release their results on 04 August.
Year-to-date, all three banks have outperformed the broader market with an average return of 19.4%, compared to the Straits Times Index’s (STI) 11.4%.
DBS and OCBC both delivered year-to-date returns of close to 20%, while UOB’s stock price is up 16.3%.
Banks should still ‘exercise continued prudence’ in distributions
Last July, the Monetary Authority of Singapore called on local banks and finance companies to cap their total dividends per share (DPS) for FY2020 at 60% of FY2019’s DPS, and offer shareholders the option of receiving the remaining dividends in shares in lieu of cash.
As a result, DBS paid out a total DPS of S$0.87 in FY2020, against S$1.23 in FY2019. OCBC paid out S$0.318 in FY2020, against S$0.53 in FY2019. Finally, UOB distributed S$0.78 of DPS in FY2020, down from S$1.30 in FY2019.
The restrictions were introduced as a pre-emptive measure to ensure that financial institutions maintained strong lending capacities to support the economy throughout the pandemic.
MAS said that the global economic outlook has since improved, adding that Singapore banks ‘have maintained strong capital adequacy ratios and continued to meet the credit needs of individuals and businesses, despite higher levels of provisioning made during the pandemic’.
Nevertheless, it warned that downside risks still remain, with Covid-19 yet to be endemic. As such, it advised banks and financial services firms to ‘exercise continued prudence in their discretionary distributions’.
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