Lloyds Banking Group PLC and peers have plenty of capital but will

With third-quarter results in from four of the five FTSE 100 banks, it’s fairly clear banks are keen to pay dividends.

The sector’s capital reserves contain much more than is required by the regulator, with current headroom at roughly £200bn.

However, since March, the Bank of England has held the banks back from making dividend and bonus payments, to ensure balance sheets are strong enough to withstand whatever the coronavirus pandemic could bring.

But, in their third-quarter results over the past week Britain’s big lenders have slashed their level of new provisions for bad debts, indicating the sector is confident it has enough of a buffer to cope with the worst of the pandemic’s effects.

On Thursday, PLC () revealed it had strengthened its capital reserves, with a Common Equity Tier-1 ratio of 15.2%.

This is above the 15% level at which ended last year and paid out a final dividend of 2.25p per share, totalling £1.6bn.

Looking back on last year’s finals, when Lloyds’ CET1 ratio fell to 13.8% after dividends, directors said for this year they were targeting an ongoing CET1 capital ratio of circa 12.5% plus a management buffer of circa 1%, so 13.5%.

Also today, () reported a capital ratio of 14.4%, while earliet in the week PLC () unveiled a ratio of 15.6%, while at () last week it was 14.6%, still more than 300 basis points above regulatory requirements.

PLC () reports on Friday and it would be highly surprising if it is an outlier.

Under pressure from this increasingly confident sector, the BoE’s Prudential Regulatory Authority is reportedly ready to allow shareholder payments to resume as long as banks maintain their financial strength and continue to support business struggling due to the pandemic.

A decision from the regulator is expected by Christmas, Barclays and others have said.

Lenders will need to agree on a new floor for their capital ratios and commit to increase net lending.

With the PRA ban effectively having prevented around £8bn of cash being paid to shareholders earlier in the year when the economy was going into lockdown, plus pre-pandemic forecasts having estimated the sector would pay out nearly £14bn in dividends on their 2020 earnings, many shareholders will be rubbing their hands with glee – especially with bank shares scraping multi-year lows.

Alex Brazier, executive director for financial stability, told a conference this week: “It does require a degree of patience from investors.”

And analysts at UBS said that it was questionable whether bank’s levels of capital are quite as excessive as they seem “in a market in which Brexit, COVID-19 and regulatory uncertainty are so pronounced”.

Indeed, Tom Sieber, markets analyst at AJ Bell, says investors should not get their expectations too high.

“If you consider that before the crisis the banks were already…