Fiscal Stability: Singapore to conduct bank stress tests to assess dividend caps

*The Monetary Authority of Singapore is determined to ensure that lenders are a ‘source of strength’ for the economy as ‘quite a bit of uncertainties remain’ in the country’s economy

Emmanuel Akosile│ConsumerConnect

In a move to ascertain that financial institutions as lenders are a “source of strength” for the economy, Singapore’s financial regulator is carrying out additional stress tests on banks to assess whether the current restrictions on dividends need to be extended or otherwise.

Ravi Menon, Managing Director of Monetary Authority of Singapore (MAS), who said this during a briefing on its annual report Wednesday, June 30 stated that the Central Bank of Singapore wants to make sure lenders are a “source of strength” for the economy as “quite a bit of uncertainties remain,” Bloomberg report said.

Menon said the stress tests would “very much guide our decision going forward” and the MAS will advise on its decision “very shortly.”

Although concerns that defaults among weaker companies could strain banks’ profitability and capital positions haven’t materialised, problem loans can take time to surface, Menon said.

Singapore’s cautious stance on dividend payouts comes as major U.S. banks announce plans to raise dividends after amassing cash piles that easily meet regulatory requirements, according to report.

Regulators in the UK and Australia also eased restrictions on dividends payout last year.

Report further showed that the MAS last July asked banks to cap their 2020 dividends at 60% of 2019 levels to ensure a sufficient flow of loans during the coronavirus pandemic.

The regulator reportedly made the request as a preemptive measure after stress tests showed that local banks were resilient.

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