Smaller dividends help drive bank capital rise, not loan cuts: BIS

LONDON Sun Sep 15, 2013 3:53pm IST

LONDON (Reuters) - A rise in capital levels across banks in recent years has been mainly due to them holding onto earnings and cutting dividends, rather than slashing lending, the global organization for central banks said on Sunday.

Regulators have forced banks to bolster capital because of the 2007/09 financial crisis so they are better able to absorb losses and avoid any need to be rescued by taxpayers.

The Bank for International Settlements (BIS) said average core capital ratios for a sample of large, internationally active banks rose from 5.7 percent at the end of 2009 to 8.5 percent by mid-2012, based on capital as a percentage of risk-weighted assets (RWAs) under full Basel III rules.

"The bulk of the adjustment has taken place through the accumulation of retained earnings, rather than through sharp adjustments in lending or asset growth," the BIS paper said.

It estimated 1.9 percentage points of the rise came from banks holding profits and paying out less to shareholders. Fundraisings contributed the remainder.

Regulators and politicians are trying to create safer banks with more capital but want them to keep lending to spur economic recovery. The extent to which banks are lending and how this affects the economy remains under hot debate in many countries.

The BIS report said bank assets in aggregate grew by 15 percent from 2009 to 2012, with a 47 percent rise in emerging economy banks and an 8 percent rise in mature economies.

"Fears that banks would stop lending have thus not been borne out, at least at the aggregate level," it said.

European banks' lending growth lagged their asset growth as they built up cash and government securities, but there was still a marginal rise in loans, BIS said.

Dividend payouts fell to 27 percent of income for banks in the sample, from almost 40 percent, due to cuts by banks in developed countries.

Holding more capital and slicing dividends cut return on equity to 8.1 percent in 2010/12 across the sample, from 20.7 percent from 2005/07. RoE plunged to 3.9 percent in Europe.

Leverage ratios for big banks rose to 3.7 percent by mid-2012 from 2.8 percent at the end of 2009, BIS said.

(Reporting by Steve Slater; Editing by Ruth Pitchford)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

Popularity Poll

REUTERS SHOWCASE

Record Highs

Record Highs

Nifty touches record high; software stocks gain.  Full Article 

New Adviser

New Adviser

Arvind Subramanian likely to be chief econ adviser.  Full Article 

Pricing Mechanism

Pricing Mechanism

Govt sets up a four-member panel to re-examine gas pricing.  Full Article 

Royalty Rates

Royalty Rates

India to hike iron ore royalty, miners may struggle to pass on extra cost.  Full Article 

Diesel Deregulation

Diesel Deregulation

Oil ministry to seek Cabinet nod on diesel deregulation - sources  Full Article 

Commodities

Commodities

Gold near two-month low; set for weekly drop on interest rate fears  Full Article 

Reuters Exclusive

Reuters Exclusive

Apple iPhone 6 screen snag leaves supply chain scrambling   Full Article 

Helping Regional Mills

Helping Regional Mills

Govt raises sugar import duty to 25 pct from 15 pct.  Full Article 

Curbing Risks

Curbing Risks

RBI to lower ceiling on bank loans to a single corporate group.  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage