SINGAPORE -- Singapore banks this week loosened their purse strings to reward investors on strong second quarter results, showing they are comfortable that the recovery from COVID-19 remains on track despite setbacks across Asia.
DBS Group Holdings, Southeast Asia's largest lender, on Thursday announced interim payouts to shareholders at 33 Singapore cents per share for the quarter, up from 18 cents a year ago.
For the April-June quarter, the bank booked a net profit of SG$1.7 billion (US$1.2 billion), a 37% surge from SG$1.25 billion a year earlier, as signs of an ongoing business recovery gave it the confidence to reward stakeholders more generously.
"Where we are overall -- we're really pleased," said Piyush Gupta, DBS' chief executive officer, during an online earnings briefing on Thursday. "It was a strong first half of the year, and we go into the back end of the year with a fairly high degree of confidence."
DBS reported a nonperforming loan ratio of 1.5% for the quarter, unchanged from the previous three months.
Considered an indicator of the soundness of a bank's loan book, the ratio identifies the proportion of defaults as a part of the overall sum that a financial institution has lent.
The steady number is another sign that recovery has not been derailed. Bad debts from borrowers in distress due to the pandemic are still largely in check, with repayment moratoriums helping the situation.
An ongoing business recovery that is accompanying a largely successful citywide inoculation program has given Singapore's DBS Group Holdings the confidence to reward its stakeholders more generously. (Photo by Akira Kodaka) Late last month, the Monetary Authority of Singapore lifted dividend restrictions on DBS, along with its peers United Overseas Bank and Oversea-Chinese Banking Corp. The three are the city-state's biggest local lenders.
The move came after Thailand's central bank allowed lenders to pay interim dividends, deeming that the financial institutions had the wherewithal to withstand the impact of COVID outbreaks -- a shift in tone from last year when the bank called for commercial lenders to hold off on payouts and share buybacks to preserve capital.
In July and August last year, Singapore's central bank called on lenders to cap their total dividends per share at 60% of their 2019 fiscal year's payouts as a preemptive measure to ensure that the financial institutions were in a position to support the pandemic-hit economy.
"The global economic outlook has since improved," the monetary authority said last month. "While some uncertainties remain, Singapore's economy is expected to continue on its recovery path, given strengthening global demand and progress in our vaccination programme."
Both UOB and OCBC share this view and on Wednesday also hiked dividends. UOB announced an interim payout of 60 Singapore cents tagged to one ordinary share for the first half of the year, up from 39 cents a year earlier.
Net profit for the second quarter surged 43% to hit SG$1 billion, compared with SG$703 million for the same period last year. Its nonperforming loan ratio remained unchanged from the past quarter at 1.5%.
"We confirm a positive outlook for the rest of the year," UOB CEO Wee Ee Cheong said during a virtual earnings briefing on Wednesday. "We are optimistic on growth prospects as economies pick up pace in recovery as vaccination levels increase."
OCBC announced an interim dividend of 25 Singapore cents per share for the first half of the year, a modest increase from 15.9 cents a year ago.
It had booked a 59% year-on-year jump in net profit during the second quarter to hit SG$1.16 billion. Like UOB, it kept its nonperforming loan ratio unchanged from the previous quarter at 1.5%.
"Overall, the three banks beat estimates accompanied by improvement in guidance and restoration of dividend back to pre-pandemic level," noted Jefferies analyst Krishna Guha in a report. "The results paint a picture of steady economic recovery albeit with ample fiscal and monetary support."
Singapore is among Asia's most inoculated countries, with 80% of its 5.7 million people set to be fully vaccinated against COVID-19 by September.
Authorities are banking on the shots to help sustain a gradual economic reopening, even as the more contagious delta variant has sent coronavirus cases surging elsewhere in Asia.
While the pickup in economic activity is a boon for Singapore banks and their capacity to make payouts, their peers in other Southeast Asian nations might be harder pressed to stay on a steady path to recovery.
"Other ASEAN banks will likely take a more cautious approach to cash dividends, because of the worsening COVID situation and related economic scarring," said Eugene Tarzimanov, Senior Credit Officer at Moody's Investors Service.
In Thailand, Indonesia and Malaysia, the resurgent virus has threatened to overwhelm health care infrastructure and slow business recoveries.
"If you look at Malaysia and Indonesia, obviously it is due to the resurgence of the COVID variant that has actually caused a setback on the economic growth that has actually started in the first half of the year," OCBC CEO Helen Wong said during an earnings call on Wednesday, adding that she expected bad loans to further surface from the affected countries.
Lenders in Australia, Singapore and India are expected to come out the strongest in the Asia-Pacific region this year when it comes to issuing dividends, Ralph Chen, a research analyst at IHS Markit projected in a July report.
Chen noted that the current low interest rate environment, the surge in pandemic-related bad loan provisions and restrictions on the distribution of capital have taken a huge toll on banks' dividend payouts, with Singapore lenders being the exception among ASEAN banks.
"Malaysia, Thailand, and Indonesia, however, are expected to see muted recovery in banking dividends," he wrote. "These countries are still grappling with relatively high virus cases and the hits on their economies."