UPDATE 1-Singapore bank shares fall after regulator caps dividends

(Adds analyst quote, share price moves)

SINGAPORE, July 30 (Reuters) - Shares in Singapore banks fell in early Thursday trade after the central bank asked local banks to cap dividends this year to conserve capital and increase lending capacity amid an uncertain economic outlook during the COVID-19 pandemic.

Shares in DBS Group lost 3.3%, OCBC shed 2.8% and United Overseas Bank declined by 1.4% in a wider market that was down 0.2%.

With the city-state facing its deepest recession ever, the Monetary Authority of Singapore (MAS) called on banks to cap 2020 total dividends at 60% of what they paid out last year.

“With ongoing pressure on net interest margin, credit cost and non interest income, the high expected dividend yields have been one of the few positives for the banks,” Credit Suisse analysts said in a note. “Hence, the lower dividends for 2020 removes some near term support,” they said.

MAS also asked locally incorporated banks headquartered in Singapore to offer shareholders the option of receiving dividends in the form of shares instead of cash.

“MAS wants to ensure the banks’ capital buffers remain ample in the face of significant uncertainties ahead, so that they can sustain lending to the economy,” said MAS chief Ravi Menon. (Reporting by Anshuman Daga; Editing by Muralikumar Anantharaman)