After faltering for two years, bank dividends appear poised for a rebound.

Some analysts are predicting that payouts will rise significantly during the next 12 months, thanks to sharply higher capital levels and stronger earnings.

"With the possible exception of Citibank, every company we cover, all 47, will raise their dividend by September 1993," predicted Thomas K. Brown, banking analyst at Donaldson, Lufkin & Jenrette Securities Corp., one of the more optimistic observers. "It seems to me we're in a situation where there's going to be an explosion in dividend payments."

Some Pay No Dividend

Among the banks tracked by Donaldson Lufkin are Bank of Boston Corp., Shawmut National Corp., and Cullen/Frost Bankers, which currently pay no common stock dividend.

Mr. Brown argued that, after a round of reserve-building and stronger earnings, banks have "excessive" capital levels. The nation's top 25 banks had a combined equity-to-assets ratio of 6.94% at the end of June, higher than at any time in the last 20 years, he said.

Mr. Brown predicted that BankAmerica Corp., Nations-Bank Corp., Signet Banking Corp., and National City Corp. would all be in a position to increase dividends sharply within 18 months. He predicted a 33% increase at National City and more than 200% at Signet.

"Might we see payout rates rise? It's very possible," said John Heffern, analyst at Alex. Brown & Sons, who said likely candidates are banking companies that will generate earnings growth from acquisitions. He predicted Comerica Inc. and KeyCorp could increase dividends about 10% by next year.

Any significant increase in dividend payouts by banks would be in sharp contrast to last year, when the nation's 147 largest banks increased their dividends only 0.5% according to Keefe, Bruyette & Woods Inc. Thirty major banks slashed their dividends last year; 20 of them canceled payouts outright.

In the 1980s, by contrast, the annual median growth rate of dividends was 8% to 10%, according to Keefe Bruyette.

One element that could support higher dividend payouts is that slower asset growth will limit the need for new capital, said John Leonard, banking analyst at Salomon Brothers Inc.

Banks would have low capital needs if economic growth stays slow and little demand develops for new loans, he said. If bank assets increase slowly, capital generated through retained earnings would increase capital ratios, he said.

Even if loan demand does pick up, banks would liquidate some of their huge holdings of investment securities rather than increase the size of thier balance sheets, which would require capital, said Mr. Brown of Donaldson Lufkin.

Banks are also likely to raise the ratio of earnings they pay out in dividends because of scarce opportunities to use capital to increase assets, he said.

While many banks now aim to pay dividends equal to 30% to 35% of earnings, Mr. Brown said he sees this ratio rising to near 50%. Even so, he sees bank capital ratios rising strongly enough in the next two to three years that some banks will choose to buy back common stock or redeem preferred stock.

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