DBS Outshines Rivals with Balanced Capital Return Plan, UOB Boasts Most Optimized Structure
DBS Group Holdings’ capital return strategy has been hailed as the most balanced and effective among Singapore’s top three banks, according to Bloomberg Intelligence’s senior credit analyst Rena Kwok. In contrast, United Overseas Bank (UOB) has the most optimized capital structure, while Oversea-Chinese Banking Corporation (OCBC) has room for improvement, particularly in share buybacks.
In a March 6 research note, Kwok highlighted that all three major Singapore banks have strong capital reserves, which will likely lead to limited debt issuance in 2025, supported by solid earnings and stable risk-weighted asset growth.
DBS Capital Returns Lead the Pack
DBS’s capital return plan is the strongest among its peers, featuring a comprehensive mix of dividends, share buybacks, and a new 15-cent capital return dividend per quarter in 2025.
Key highlights of DBS’s capital strategy:
$3 billion share buyback program
27% increase in FY2024 ordinary dividends
15-cent capital return dividend per quarter
According to Kwok, this strategy optimizes earnings per share (EPS) growth while maintaining earnings sustainability, making it “more immediate and effective” than those of UOB and OCBC.
UOB Has the Most Optimized Capital Structure
While DBS leads in capital return effectiveness, UOB has the lowest weighted average cost of capital (WACC), signaling the most efficient capital structure among Singapore banks.
Bloomberg Intelligence’s data showed that:
UOB’s WACC was the lowest, meaning it efficiently balances funding costs and capital returns.
OCBC had the highest WACC, suggesting room for structural optimization.
UOB also boasts the highest fully phased-in CET-1 ratio of 15.4% in 4QFY2024, reinforcing its strong capital position. However, its $2 billion buyback program, executed over three years, may delay immediate investor benefits.
OCBC Focuses on Dividends, Lags in Share Buybacks
OCBC, unlike its peers, is prioritizing dividends over buybacks, which limits its earnings per share upside, according to Kwok.
While its capital structure remains strong, the bank’s above-peer WACC and lack of aggressive buyback initiatives make it less attractive for investors seeking immediate capital appreciation.
However, OCBC has room to optimize its capital allocation, particularly if interest rates stay high for longer, which could boost capital generation and returns.
Large Capital Cushions Provide Stability for Singapore Banks
Despite ongoing capital return initiatives, all three banks are expected to maintain strong capital positions in 2025.
Each bank has at least $3 billion in excess CET-1 capital above their operating range of 12.5%–14%.
Existing AT1 and Tier-2 (T2) bonds nearing call dates present refinancing opportunities.
$800 million of T2 capital is set to roll off, with $700 million of AT1s callable in 2025.
According to Kwok, suboptimal AT1 and T2 capital ratios provide further opportunities for banks to optimize their capital structures as rates decline.
Looking Ahead: Who Stands Out?
With no major M&A activity expected in the near term, capital returns remain a key focus for Singapore’s top banks.
DBS’s plan stands out as the most effective, with immediate returns via dividends and buybacks.
UOB maintains the most efficient capital structure, offering stability and long-term growth potential.
OCBC remains the least aggressive in capital returns, focusing on dividends but missing EPS-boosting buybacks.
As Singapore banks navigate shifting interest rate environments and regional expansion, their capital return strategies will be crucial in determining their competitive edge in 2025 and beyond.
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