See also: Credit costs likely peaked, asset quality stabilises, dividends to normalise for Asean banks
“We don’t expect the banks to release provision reserves in 2Q2021 as management are likely to remain conservative in light of the recent pick up in Covid-19 cases and tightened mobility restrictions regionally,” says UBS. The Swiss bank pointed out that DBS’s 1Q2021 writeback was ‘entirely model driven and was due to repayments and improvement in asset quality, while management overlay of $1.3 billion still remains intact’. UBS adds that it doesn’t see any signficant changes in MEV models from 1Q2021 to 2Q2021.
Dividends could be reinstated, UBS indicates. “We believe MAS will likely lift the dividend restrictions given the strong capital levels at the local banks, stabilising asset quality, and prudent and early provisioning in 2020.” At the recent Monetary Authority of Singapore’s Annual Report 2020/2021 Virtual Media Conference on June 30, 2021, MAS managing director Ravi Menon shared that "MAS’ concerns at the onset of the crisis that defaults among weaker corporates could strain banks’ profitability and capital positions have not materialised. MAS is conducting additional stress tests to assess whether it is necessary to extend the current dividend restrictions on local banks and finance companies."
In FY2021, UBS estimates that DBS is likely to return to a dividend of 33 cents per quarter, OCBC to a dividend of 48 cents for the full year, and UOB will resume its 50% payout ratio without a special dividend of around $1.10. This translate into a divdend yield of 4.3% for DBS, 4.2% for UOB, and 3.9% for OCBC.
