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Shares in Singapore’s top 3 banks fell Thursday after the country’s monetary regulator asked lenders to limit dividends this year due to economic uncertainty due to the coronavirus pandemic.
The second largest bank in the country, Oversea-Chinese Banking Corp, suffered the loss after completing the day with 3.82% less than the previous day. DbS Group Holdings and United Overseas Bank lost 3.09% and 3.15% respectively at closing.
The three banks account for about one-third of the Straits Times benchmark, which fell 1.7 percent on Thursday.
The country’s monetary regulator and the central bank, the Monetary Authority of Singapore, on Wednesday suggested that banks limit their overall dividends consistently with this year’s consistent percentage to 60% of last year’s amount.
He also stated that lenders may be offering shareholders the opportunity to earn dividends in the form of more cash shares.
The MAS announcement follows similar, and relatively stricter, measures through other monetary regulators around the world. The Bank of England has suggested banks reduce dividends this year, while Australia’s monetary control body makes banks and insurers pay less than a portion of their profits to shareholders for the remainder of 2020.
The Singapore regulator said dividend restrictions were a precautionary measure. He added that stress tests have shown that local banks are resilient even in “unfavourable situations consistent with a severe and prolonged public fitness crisis.”
The country is one of the highest coronavirus-affected in Southeast Asia. On Wednesday, Singapore reported more than 51,500 cases and 27 deaths, according to its fitness ministry.
Its economy will shrink from 4% to 7% this year, which would be the country’s worst recession since independence in 1965.
“MAS must ensure that banks’ capital buffers remain sufficient in the face of the significant uncertainties ahead, so that they can lend to the economy,” said Ravi Menon, MANAGING Director of MAS.
Krishna Guha, Jefferies’ equity analyst, said in a note Thursday that the dividend limit would likely affect investor confidence.
“That said, investors want to stay in the mind of the strong Capital Array positions… the same always caution of the central bank and the fact that the 60% ceiling is not as serious as the restrictions in some other jurisdictions,” he said.
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