Endeavours by bank boards to pander to demands from investors for higher dividends need to be handled with care, Moody's Investors Service cautioned yesterday.Moody's said it had conducted a scenario analysis and concluded "that all four banks can maintain their current dividend policies in a cyclical downturn scenario without a significant adverse impact on their credit profiles."However, "in a scenario in which they suffer large credit losses - in line with a more serious economic crisis - our analysis suggests that they will need to raise additional capital and cut dividend payments," Moody's said.During the first half of 2013, Australia's four major banks increased their dividend payout ratios, and removed the discount on their dividend reinvestment plans. ANZ announced its intention to move to the upper end of its 65 per cent to 70 per cent payout range. And NAB increased its first half payout ratio by roughly four percentage points to 75 per cent.Westpac announced a 10 cents per share special dividend in addition to an already increased ordinary dividend. In February 2013, CBA raised its first-half dividend payout ratio to 70 per cent, from 61 per cent.Moody's said it had assessed the immediate effects of dividend increases and found them "to be credit-neutral, as the revised payout ratios come at a time when these banks are reporting healthy capital levels and better-than-expected asset quality metrics."It also noted that the banks' capital ratios remain comfortably above the announced preferred ranges - another factor informing investors' interest in higher payouts. Moody's said that "in our view, opportunities for further capital management need to be evaluated in the context of an uncertain macroeconomic outlook in Australia and, therefore, possibly less favourable loan impairment results.""Our scenario analysis suggests that, in a cyclical economic downturn akin to that experienced during the 1991 recession, the banks would be able to sustain the modestly increased dividend payouts, and maintain capital ratios at strong levels."In a scenario in which banks suffer large credit losses in line with a more serious economic crisis, our analysis suggests that they will need to raise additional capital and cut dividend payments."In our view, the banks retain the ability to re-adjust their dividends in response to deteriorating conditions, without negatively affecting investor perceptions. Recently announced increased payouts have been explicitly linked by managements to the banks' capital targets, and we expect a breach of these thresholds… [would] result in a change in their capital strategies."Moody's pointed out some other implications of the stance of banks' boards, including "their assessment that they have reached their capitalisation targets", as well as "the banks' expectations that credit growth will continue to be moderate for the foreseeable future."