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MAS Removes Caps on Dividend Payments by Local Banks

On July 28, the MAS or Monetary Authority of Singapore announced that it was lifting the extensions for dividend restrictions on local banks and finance companies which were implemented last year during the economic uncertainties because of the Covid-19 pandemic.

The central bank had advised them last year to cap total dividends per share for the fiscal year 2020 at 60% of the previous year’s level. We at Asiaone will cover these new updates on this announcement by the MAS.

Lifting of the dividend restrictions

The central bank however did not extend the limitations due to the positive outlook that the economy will be replenished and will be strengthened as the pandemic onslaught will continue to run its course.

Ho Hern Shin, the deputy managing director of MAS stated, “Local banks and finance companies have fared well in the face of the pandemic and are well-positioned to help the economy recover.”

Banks and finance businesses were also urged to give shareholders the choice of receiving dividends in shares instead of cash in 2020.

Despite the heightened provisioning made while the pandemic was on, the MAS stated on Wednesday that banks and finance companies had maintained good capital adequacy ratios and continued to service the credit needs of consumers and businesses.

Supposed financial recession

According to the MAS, these ratios are expected to remain resilient even in the event of an unfavorable macroeconomic scenario induced by a stalled global recovery, which would result in the Singapore economy entering into a financial crisis in 2021. 

He also said, “As downside risks remain, local banks and finance companies should exercise continued prudence in their discretionary distributions, whilst prioritizing support to customers.”

The administration of Singapore is hoping that the gross domestic product will increase from 4 percent to 6 percent this 2021, albeit the growth could be promising at the end of the pandemic. The major economy has suffered its worst recession yet last year.

2020 initial measures

Last year, MAS released certain measures on how to give those businesses who are suffering because of the pandemic financial relief. The main outline of the measures is the extension of debt moratoriums.

Back then, MAS had already instituted measures to help those businesses who are struggling because of the pandemic prior to the extension.

MAS has permitted for the deferment of disbursement for trade and industrial property loans, mortgage loans, car loans, and renovation loans to allow the easing of the business and individual’s financial burden.

Loan repayment extensions

Businesses and individuals could better manage their financial flows and prevent bankruptcy by enabling loan repayments to be deferred.

Small and medium companies (SMEs) in Tiers 1 and 2 are eligible to delay up to 80% of principal repayments on secured loans until June 30, 2021, under the Extended Support Scheme.

Tier 1 and 2 are the industries that are severely affected by the pandemic including tourism, aviation, land transport, aerospace, exhibitions and conventions, gaming, and entertainment.

The difference between these measures versus the previous ones is that the businesses and individuals can be allowed to be granted a moratorium without having to show proof of the visible effect of the pandemic.

The previous measures also are not sufficient enough to keep the loan repayments updated and banks are continuously reporting pockets of financial stress, the businesses and individuals being affected by the viral onslaught.

Helping to make SMEs to recover

By reducing the number of loan repayments, the government can help small businesses to recover their cash flows by reducing the risks of the business going bankrupt.

Also, individuals can also have better management of their finances by keeping the mortgage loan repayments up-to-date and will not leave the bank with a bad loan on their ledger.

Reopening of the economy

With the abolition of these dividend restrictions, businesses can now fully cope with the ongoing pandemic wreaking havoc on our psychological and economic states. 

It will also make the reopening of the economy easier now that businesses can rebuild from the ashes of their financial burden. We at Asiaone Singapore believe that the reopening of the economy of Singapore is happening soon.