Template-Type: ReDIF-Paper 1.0
Author-Name: Leonardo Gambacorta
Author-X-Name-First: Leonardo 
Author-X-Name-Last: Gambacorta
Author-Name: Tommaso Oliviero
Author-X-Name-First: Tommaso
Author-X-Name-Last: Oliviero
Author-Name: Tommaso Hyun Song Shin
Author-X-Name-First: Hyun Song
Author-X-Name-Last: Shin
Title: Low price-to-book ratios and bank dividend payout policies
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.
Length: 29 pages
Creation-Date: 2020-12
File-URL: https://www.bis.org/publ/work907.pdf
File-Format: Application/pdf
File-Function: Full PDF document
File-URL: https://www.bis.org/publ/work907.htm
File-Format: text/html
Number: 907
Keywords: dividend payout policy, banks, low interest rates, Covid-19 crisis
Classification-JEL: G21, G35
Handle: RePEc:bis:biswps:907