Ms Jacqueline Loh, MAS’ Deputy Managing Director, spoke on the shifts in the interest rate benchmark landscape, and what we must do in preparation.
Response to "MAS request of banks not fair to retail investors" - The Straits Times, 10 August 2020
We thank Mr Rajagopalan Krishnamoorthy for his feedback on the dividend restrictions on local banks announced by the Monetary Authority of Singapore (MAS) on 29 July 2020 (“MAS request of banks not fair to retail investors”, 10 August 2020).
2 Mr Krishnamoorthy asked if it was necessary for MAS to intervene in the local banks’ dividend payouts, and if such a move required shareholders’ consent. Dividends are a means through which companies share excess profits with their shareholders. They are discretionary in nature, subject to the assessed cash needs of the company.
3 The dividend restriction announced by MAS will bolster local banks’ strong capital buffers, strengthening their ability to absorb shocks and support lending to businesses and individuals through this period of uncertainty. Major jurisdictions such as the US, UK, EU and Australia have taken similar pre-emptive capital conservation measures. MAS’ measure is applicable to local banks and finance companies, and is not intended to serve as guidance for other corporates.
4 MAS recognises that some shareholders rely on local banks’ dividends for regular income, and has sought to balance the policy objective of ensuring the banks’ robust financial positions with the cashflow needs of these shareholders.
5 This is why, instead of suspending dividends altogether as some other jurisdictions have done, MAS carefully calibrated the dividend cut at 40% of the local banks’ FY2019 dividend per share. Should the dividend restriction turn out to be overly conservative, the retained profits will still accrue to shareholders and they should not be worse off in the longer run.
6 Mr Krishnamoorthy also asked about changes in loan interest rates. MAS expects loan interest rates to be revised in a timely and fair manner in line with market developments, taking into account banks’ cost of funding. For mortgages, borrowers currently on housing loans pegged to market rates, such as the Singapore Interbank Offered Rate (SGD SIBOR), would already have seen interest rates for their loans adjust downwards over the past few months.
7 Borrowers can also refinance their property loans to take advantage of lower interest rates without being subject to total debt servicing ratio (TDSR) rules. This is available for both owner-occupied and investment property loans. For loans within the lock-in period, banks may impose charges according to the terms of the loan. We encourage borrowers who are facing financial difficulties to reach out to their financial institutions to discuss possible fee waivers and to work out sustainable debt repayment options.
Director (Corporate Communications)
Monetary Authority of Singapore