LONDON 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)