Banks under spotlight over dividends

Eurozone banks should be encouraged to keep more of their profits rather than pay dividends, to bolster their capital, and finance new loans, the head of research of the Bank of International Settlements said yesterday.

The eurozone has been battling low economic growth and sluggish lending for years, and banks have complained that rising capital requirements — the obligation to hold funds against loans and other exposures — are curbing their ability to extend credit.

Hyun Song Shin, head of research at BIS, the Swiss-based forum of major central banks, said it was in the public interest for banks to hold more of their earnings, because better-capitalised companies can fund themselves more cheaply and, therefore, are in a better position to lend.