Singapore banks dominate surge in share buybacks
The value of buybacks by DBS Group Holdings, Singapore's largest bank, accounts for nearly half of all the stock repurchases in Singapore from Apr 1 to Apr 23, followed by United Overseas Bank (UOB) at 25 per cent and Oversea-Chinese Banking Corporation (OCBC) at just over 8 per cent, according to data compiled by Bloomberg.
Singapore banks, among the most well-capitalised in the region, pledged in recent months to hand over billions of US dollars in surplus capital to investors on the back of record-high earnings. Such action came in handy during global stock sell-offs triggered by US President Donald Trump's tariff measures.
Elsewhere, banks emerged as the biggest contributors to buybacks in Europe, while share repurchase plans announced in China this month have reached the most since a stock rout in February 2024.
Maybank analyst Thilan Wickramasinghe said Singapore lenders have been carrying excess capital for some time, despite spending on recent deals and integrating them. However, he noted there may be risks that capital returns could be reassessed given the heightened uncertainty in the operating environment.
Shares of DBS, UOB and OCBC fell to multi-month lows earlier this month as they joined a plunge in global equities, before paring losses. Investors are still concerned that weak economic growth would lead to interest rate cuts and impact banks' lending margins. Singapore banks report quarterly results next month.
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Morgan Stanley's South-east Asian analysts led by Nick Lord slashed earnings estimates of Singapore lenders by up to 11 per cent for 2025, and 8 to 11 per cent for 2026. The bank said in a report that the main driver of the changes in estimates for 2025 is a 'pre-emptive provision charge based on deteriorating macroeconomic variables'.
Despite the cut to earnings forecasts, Morgan Stanley left capital return forecasts unchanged as it expects the banks' 'fully loaded' common equity Tier one ratios to remain healthy, partly due to lower loan growth and still-robust return on equity.
Meanwhile, Goldman Sachs maintained a buy rating on the three banks, saying it favours stocks with 'robust and sustainable profitability and the capability to increase capital returns'. It expects excess capital for the trio to build up by 2027, given that the lenders remain capital generative.
Jefferies analyst Sam Wong said that given that all three lenders are trading above their book value, buyback is not the most value accretive form of shareholder return. 'That said, a buyback mandate would allow the banks to provide some stability to share price in an uncertain environment, and to develop a more sticky investor base (versus any one-off special div),' Wong said. BLOOMBERG
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