Singapore Banks - DBS Research 2020-07-30: Valuation Support Dragged By Dividend Cap

Singapore Banks - DBS Research | SGinvestors.io DBS GROUP HOLDINGS LTD (SGX:D05) UNITED OVERSEAS BANK LTD (SGX:U11) OVERSEA-CHINESE BANKING CORP (SGX:O39)

Singapore Banks - Valuation Support Dragged By Dividend Cap

  • Local banks called on to cap FY20 dividends to 60% of FY19’s dividend per share (DPS); scrip to be offered.
  • Banks continue to have ample capital buffers.
  • Weaker 2H20 outlook may persist beyond year-end; keep watch on asset quality.
  • Maintain HOLD on OCBC and UOB due to limited catalysts ahead of 2Q20 results.



Dividend cap implies lower dividend yield, putting pressure on its valuation support.

  • MAS has called on Singapore banks to cap their total DPS for FY20 at 60% of FY19’s total DPS, with the option for scrip dividends, on a pre-emptive basis to ensure Singapore banks are able to continue supporting businesses and individuals in the face of significant uncertainties ahead. Based on our calculations, this implies a dividend payout ratio of 40-44% based on FY20F earnings.
  • We believe that Singapore banks’ valuation, now trading at c.0.8-1.0x FY21F book value, was supported by their relatively high dividend yields.
  • The latest move by MAS, implying lower DPS for FY20F translating to lower dividend yields of 3.6-3.9% (previous: 5.2-6.5% FY20F dividend yields) could push down the support levels.
  • See DBS Dividend History, OCBC Dividend History, UOB Dividend History.


Singapore banks to continue having ample capital buffers.

  • While this is short term negative on share prices, the move by MAS is prudent and will place Singapore banks in a stronger position to combat challenges ahead.
  • As at 1Q20, DBS/OCBC/UOB’s CET1 ratio stood at 13.9%/ 14.3%/ 14.1%, amongst the highest across ASEAN banks. We estimate that the dividend cap will add 0.2- 0.3% to our projected CET1 ratio as at end-FY20F. Should there be a stabilisation of the pandemic situation and economic outlook improves towards FY21-22F, we do expect Singapore banks to eventually pay out special dividends should their CET1 ratios remain well above their pre-COVID 19 levels.


Weaker 2H20 outlook may persist beyond year-end; keep watch on asset quality.

  • As the Job Support Scheme tapers off gradually towards year-end, amid a prolonged pandemic, we believe there is increasing possibility that a weaker 2H20 outlook may persist beyond year-end in the absence of a vaccine. Various mortgage and debt moratoriums for SMEs amounting to S$26.4bn will also expire towards year-end, though we expect applications for moratoriums to be on the rise through year-end. We continue to monitor downside risks to asset quality given the uncertainties ahead.
  • Based on our sensitivity analysis, every 10-bps uptick in credit costs may impact sector earnings by c.7-8%. From a policy standpoint, we believe extensions to moratoriums into 1Q21 may be given, on a targeted approach.


Maintain HOLD on OCBC and UOB.






Rui Wen LIM DBS Group Research | https://www.dbsvickers.com/ 2020-07-30
SGX Stock Analyst Report NOT RATED MAINTAIN NOT RATED 99998.000 SAME 99998.000
HOLD MAINTAIN HOLD 20.900 SAME 20.900
HOLD MAINTAIN HOLD 9.300 SAME 9.300



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