Banks step up buyback spree to rescue share price

Most of the buybacks by DBS were done in May, when the share price fell 14%.

Singapore banks’ share buybacks have picked up steam in 2019. A Maybank Kim Eng report noted that DBS and OCBC have bought back more shares YTD and much earlier than they did last year.

Maybank KE analyst Thilan Wickramasinghe expounded that DBS has bought back 25% YTD of the volume it bought in 2018. “Importantly, this was mostly done in May 2019, when its share price fell 14%. Historically, DBS was most active buying back shares in Q3/Q4,” the analyst said.

Meanwhile, OCBC has bought back 60% of the volume it bought in 2018 and much earlier, the analyst added, noting that the DBS and OCBC buybacks in Q2 2019 are equivalent to 55% and 53%, respectively, of their treasury shares balances.

Also read: Singapore's big banks are on a buying spree as share buybacks hit $116.5m

“We believe this is an indicator of emerging value. Our scenario analysis suggests that non-performing loans (NPLs) would need to rise 35-80% from current levels to bump credit charges up to levels seen during the O&M crisis and GFC,” the analyst explained.

The buyback spree happening in Singapore can also be observed in other markets such as the United States, Natixis chief economist for the Asia and Pacific Alicia Garcia-Herrero and INSEAD finance professor Theo Vermaelen said in a previous interview.