Low price-to-book ratios and bank dividend payout policies

Leonardo Gambacorta, Tommaso Oliviero (tommaso.oliviero@unina.it) and Hyun Song Shin

No 907, BIS Working Papers from Bank for International Settlements

Abstract: Banks with a low price-to-book ratio have a greater propensity to pay out dividends. This propensity is especially marked for banks with a price-to-book ratio below a threshold of 0.7. As a sector, banks also tend to have higher dividend payout ratios than non-financial firms. We demonstrate these features using data for 271 advanced economy banks in 30 jurisdictions. Dividend payouts as a proportion of profits rise in a non-linear way as the price-to-book ratio falls below 0.7. In a hypothetical exercise with fixed balance sheet ratios, we find that a complete suspension of bank dividends in 2020 during the Covid-19 pandemic would have added, under different stress scenario, an additional US$ 0.8–1.1 trillion of bank lending capacity in our sample, equivalent to 1.1–1.6% of total GDP.

Keywords: dividend payout policy; banks; low interest rates; Covid-19 crisis (search for similar items in EconPapers)
JEL-codes: G21 G35 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2020-12
New Economics Papers: this item is included in nep-ban
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Working Paper: Low price-to-book ratios and bank dividend payout policies (2020)
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