Singapore's banks may maintain higher dividends amid a stronger outlook, analysts said, after lenders signaled a return to pre-pandemic levels of payout on higher profits in the second quarter.

The country's major lenders — DBS Group Holdings Ltd., United Overseas Bank Ltd. and Oversea-Chinese Banking Corporation Ltd. — this week rewarded shareholders with increased dividends, days after the Monetary Authority of Singapore removed its restriction on local banks capping their dividend payouts at 60% of 2019 levels. They also reported a surge in net profit, mainly due to lower provisions for bad loans.

"As the outlook stabilizes and the banks start to reverse the substantial provisions made in 2020 and [the first half of 2021], we believe that they will be able to sustain pre-pandemic dividends," Terence Chua, a senior research analyst at Phillip Securities Research, said.

DBS, the biggest bank in Southeast Asia by assets, on Aug. 5 declared a second-quarter dividend of 33 Singapore cents per share for the quarter ended June 30, up from a prior-year dividend of 18 cents. Its first-half dividend came to 51 cents. UOB announced a one-tier tax-exempt dividend of 60 cents for the first half, up from the 39 cents per share distributed in the first half of 2020. OCBC raised its interim dividend to 25 cents from 15 cents. OCBC and UOB both announced their earnings on Aug. 4.

Singapore has recently seen an increase in its number of COVID-19 cases, but most analysts believe the nation's economy and banking system have put the worst behind them. The central bank said on July 28 that its latest stress tests showed signs of continuous resilience in lenders' capital adequacy ratios even under an adverse scenario that factored in a stalled global economic recovery due to delays in vaccination and more contagious strains of the virus.

Earnings on track

DBS logged a 37% year-over-year growth in net profit for the quarter ended June 30 to S$1.70 billion as allowances for other credit losses fell to S$79 million from S$849 million a year earlier.

"Momentum for the full half-year has been extraordinarily strong, with the second quarter currently as strong as the first quarter. Loan growth at 3% in each quarter was actually far in excess of what we anticipated, and the good news is that it was diversified," DBS CEO Piyush Gupta said in an earnings call with journalists.

UOB booked a 43% year-over-year rise in net profit during the June quarter to S$1.00 billion, while OCBC reported a 59% net profit increase to S$1.16 billion.

"Singapore banks are clear beneficiaries of strong macroeconomic tailwinds. They are benefiting from the economic rebound in the U.S. and China in particular," said S&P Global Ratings credit analyst Rujun Duan in an Aug. 5 report. A resurgence in working capital and investment demands from corporate clients, a vigorous M&A market and a resilient consumer sector in Greater China and Singapore puts the lenders in a "sweet spot for more lending opportunities," Duan said.

However, lenders are continuing to face pressure on their margins in a low interest rate environment. DBS Group's net interest margin for the second quarter was 1.45%, down from 1.49% in the previous quarter and from 1.62% as of June 30, 2020.

NIM may grind lower at DBS, CEO Gupta said, pointing to "surplus deposits" flowing in. "We now have about S$30 billion that we're placing with central banks, and yield on that varies a bit," he said.

As of Aug. 4, US$1 was equivalent to S$1.35.