Big banks 'to increase dividends'

Barclays is expected to reveal annual profits of £7bn

Two of the UK's largest banks will this week boost the financial sector by increasing their dividend payments to shareholders, a report says.

Barclays and Lloyds TSB will unveil the larger pay-outs with their annual results, reports The Sunday Times.

Analysts believe higher dividends would be a sign that banks felt they were over the worst of the sub-prime crisis.

But the "big five" UK banks are set to reveal billions of pounds are being put aside to cover credit market losses.

Despite being set to write-off about £1.5bn, Barclays are expected to meet last year's record profits of £7.1bn.

Much of this will come from its wealth management business, Barclays Capital.

Meanwhile the paper said that Lloyds TSB was also likely to reveal a strong set of figures.

Analysts have forecast its pre-tax profits to be as high as £4.4bn.

Uncertainty

The round of banking results in the next fortnight will be watched with interest, given that banks worldwide have been reporting massive losses related to problems in the ailing US housing market.

Last week lender Bradford & Bingley (B&B) reported a sharp fall in profits after cutting the value of risky assets following the recent market turmoil.

Increased dividends would be a boost to investors, who have seen steep falls in the share price of banks since September, when the woes of Northern Rock and several large overseas banks began to emerge.

Barclays, for example, has seen its shares lose about 40% in value in the past six months.

Analysts have said that losses have in part been driven by uncertainty over how much individual banks are exposed to the US sub-prime market.

Last week Bank of England Governor Mervyn King called on banks to be open about the scale of their losses to cast aside uncertainty and boost stability in the sector.