DBS, OCBC and UOB shares slip as central bank cuts dividends: where next?

DBS, OCBC and UOB share price: What’s the latest?

Shares of Singapore’s three main banks fell over 3% each on Thursday (30 July 2020) morning, after Singapore’s central bank placed a cap on dividend pay-outs for the 2020 financial year.

As at 10:00 SGT on Thursday, DBS Group's share price is down by 3.2%, Oversea-Chinese Banking Corporation's (OCBC) descended 4.27%, while United Overseas Bank's (UOB) fell 3.13%.

Meanwhile, the wider stock benchmark – the Straits Times Index – is also down by 2.34%, its steepest decline in three weeks.

Why did the banks’ shares decline on Thursday?

In a press release posted on 29 July 2020, the Monetary Authority of Singapore (MAS) called on locally-incorporated banks headquartered in Singapore to cap their total dividends per share (DPS) for FY2020 at 60% of FY2019’s DPS.

A 60% cap on FY2019 DPS would mean that DBS Group's FY2020 DPS will max out at S$0.738 (based on 2019's pay-out of S$1.23), OCBC's FY2020 DPS will be around S$0.318 (FY2019: S$0.53), while UOB's FY2020 DPS will end up around S$0.78 (FY2019: S$1.30).

MAS also advised local banks to offer shareholders the option of receiving the dividends to be paid for FY2020 in scrip in lieu of cash.

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MAS said that the dividend restrictions are a pre-emptive measure to bolster the banks’ resilience and capacity to support lending to businesses and individuals through an uncertain period ahead for our economy.

‘We are fortunate that banks in Singapore entered the Covid-19 pandemic with strong capital positions,’ said Ravi Menon, Managing Director, MAS.

‘All the same, MAS wants to ensure the banks’ capital buffers remain ample in the face of significant uncertainties ahead, so that they can sustain lending to the economy. We have carefully calibrated the restriction on dividends, taking into account the needs of investors who may rely on this income,’ he added.

The 60% cap on Local Banks’ FY2020 dividends is intended to help banks balance the objective of capital conservation with the interests of shareholders, the central bank further noted.

Where do analysts see Singapore banks’ share price going?

IG market strategist Pan Jingyi said in a client note that although MAS’ advisory had perhaps been a milder recommendation compared to other central banks’ orders, this would ‘nevertheless diminish the attractiveness of (Singapore banks’) shares in the short-term if adopted’.

She added that the earnings of DBS Group, OCBC and UOB, to be reported next week, will be ‘one to scrutinise’, in light of the latest developments.

As OCBC investment analysts themselves noted: 'The 60% cap on FY19 dividends for the sector translates to lower estimated dividend yields of +3.6% and +3.9% for DBS and UOB respectively, based on yesterday’s closing prices of S$20.40 and S$20.02.'

As for OCBC, dividend yields will fall to roughly 3.6% - based on Wednesday's closing share price of S$8.92.

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For now, Refinitiv data show that all three banks’ stocks currently have consensus broker ratings of ‘buy’ from 18 analysts.

In terms of share price targets (based on six ratings each), DBS Group has an average estimate of S$20.83 per share, OCBC received a target of S$9.43, while UOB’s stood at $20.66.

In terms of individual trading activity so far on Thursday, ‘buys’ form 62% of all trades on IG’s DBS counter, with OCBC seeing 63% of all client trades placed on ‘buy’ (long positions) and UOB’s ‘buy’ volume at 72% of all trades.

How to trade DBS, OCBC and UOB with IG

Are you feeling bullish or bearish on Singapore bank stocks? Either way you can buy (long) or sell (short) the asset using derivatives like CFDs offered on IG's industry-leading trading platform in a few easy steps:

1. Create a live or demo IG Trading Account, or log in to your existing account
2. Enter <DBS Group Holdings Ltd>, <Oversea-Chinese Banking Corp Ltd> or <United Overseas Bank Ltd> in the search bar and select the instrument
3. Choose your position size
4. Click on ‘buy’ or ‘sell’ in the deal ticket
5. Confirm the trade