European banks are expected to return more money to shareholders in 2022 than in any of the past five years, even though capital levels were lower at June-end than a year before.

Banks' plans for dividends and share buybacks this year total €49 billion, equating to 44% of 2021 profits, according to the European Banking Authority's annual risk assessment and transparency exercise. Profits were strong in 2021, and some banks may still be catching up on dividend payouts that were deferred due to restrictions during the COVID-19 pandemic, the regulator said.

In 2021, banks paid out €43.7 billion to shareholders for a payout ratio of 148.5%, up from just €7.2 billion and a ratio of 8.8% in 2020.

UniCredit SpA said Dec. 9 that its shareholder return plans will not be affected by potentially higher capital requirements. Italy's largest bank may be required to put aside more money to cover risks associated with the Russia-Ukraine war and the economic downturn, sources told Bloomberg News. UniCredit's Russian subsidiary JSC UniCredit Bank has about 1.2 trillion Russian rubles in assets and is subject to sale restrictions.

Shareholders of Danske Bank A/S can expect higher dividends in 2023 after the Danish lender made a provision for a long-running money laundering case. Analysts expect a dividend payout at the high end of the bank's target range because uncertainty around a penalty has been removed.

European banks' capital levels declined in the 12 months to June 30, the EBA also said in its risk assessment, which covers 131 European banks, representing about 80% of the EU/EEA banking sector's assets.

At June 30, the aggregate common equity Tier 1 ratio was 14.92%, down from 15.50% a year earlier. This was driven by a surge in risk-weighted assets — partly brought about by increased lending — that outstripped capital generation via retained earnings. The aggregate leverage ratio declined to 5.18% from 5.73% over the same period.

The common equity Tier 1 ratio measures CET1 capital — the highest-quality capital — as a share of risk-weighted assets, while the leverage ratio measures Tier 1 capital as a share of total leverage, including on- and off-balance-sheet exposures.

The EBA warned that banks with capital levels closer to minimum requirements could face a challenge when needing to boost capital amid a potentially worsening economic environment. Banks' capital levels are "well above" regulatory minimums, though.

The expected macroeconomic deterioration will probably lead to slower loan growth and more impairments, and rising inflation could bump up operating costs, the regulator said. Banks that are more reliant on wholesale funding could face more rapid increases in funding costs.

As of Dec. 12, US$1 was equivalent to 63.02 Russian rubles.

* Access the EBA Transparency Exercise template in the S&P Capital IQ Pro Template Library. * Access dividend details for Danske Bank on CapIQPro. * Access dividend details for UniCredit on CapIQPro.