As profits rise, banks boost capital strength, dividend payout ratios.

Large, global banks increased their capital ratios in 2024, but liquidity coverage declined a bit, according to a new report from the Basel Committee for Banking Supervision.

The group of global bank regulators reported that its latest assessment of international banking data (to June 30, 2024) revealed banks’ risk-based capital ratios rose last year, with the common equity tier 1 capital ratio climbing to 13.4% from 13.1% at the start of the year. That left the world’s large banks with a regulatory capital shortfall of just 0.9 billion euros, based on the current state of Basel III implementation.

Around the world, banking regulators have recently backed off from fully implementing the final Basel III requirements by 2028. On a fully phased-in basis, the banks’ capital ratios would be lower (13.1%), the report noted.   

Under the current state of Basel III implementation, the banks’ capital ratios rose as the growth of Tier 1 capital outpaced the increase in risk-weighted assets, the report said. 

“Currently, the Tier 1 capital ratios are higher in Europe than in the Americas and the rest of the world,” it said, although much of the increase in 2024 was driven by banks based outside Europe and the Americas.

The increase in capital came as bank profits rose, as did their dividend payouts, the Basel Committee said.

“The dividend payout ratio stood at 35.4%, which is about 187 basis points above the one reported in the preceding period,” it said, as the annual dividend payout ratio increased in Europe and the Americas; it decreased in the rest of the world.

Additionally, the leverage ratio for large, internationally active banks remained stable at 6.1% in 2024, it reported — and the net stable funding ratio (NSFR) ticked up to 123.6% from 122.6% in 2023. 

The leverage ratios are also lower in Europe (5%), compared with banks in the Americas (5.8%) and the rest of the world (6.9%), the Basel Committee noted.

However, the banks’ liquidity ratios declined a bit, with the weighted average ratio for the big banks decreasing to 136.0% from 138.2% in 2023. 

“Since 2020, the weighted average liquidity coverage ratio LCR for both Europe and the rest of the world has largely been above 140%, while the average LCR for the Americas has been around 120%,” the report said.

Three banks also reported liquidity ratios that are below the minimum requirement under the Basel III rules, it noted.