The lift in dividend pay-out ratios by Australian banks is out of kilter with worldwide trends, which have seen internationally active banks curb dividends to build capital.Analysis by the Bank for International Settlements - using a sample of 82 large global banks - found that their retained earnings accounted for 1.9 out of a 2.9 percentage point increase in capital over five years. Capital from other sources accounted for one percentage point. For globally active banks, as well as for the advanced economy banks as a group, the BIS said retained earnings represented more than half of the overall increase in capital, accounting for 1.6 percentage points of the overall capital increase, of 2.8 percentage points. Capital generated from other sources provided the rest and was roughly equal to the dividends paid. Retained earnings were more important for non-G-SIBs (global systemically important banks) in the advanced economies than for G-SIBs, contributing 0.8 percentage points to an overall capital increase of 1.2 percentage points.The ability of banks to increase their capital by accumulating retained earnings has not resulted from an especially strong improvement in profitability, the BIS said. Net income as a share of assets fell from 0.71 per cent in the three years before the financial crisis to 0.52 per cent in the 2010 to 2012 period across the banks in the sample.This ratio fell even more sharply for advanced economy banks - from 0.67 per cent to 0.37 per cent - but it rose for emerging economy banks, from around 1 per cent to 1.23 per cent. The BIS analysis considered objections to regulatory demands for higher bank capital, namely that this "would impose considerable short-term macroeconomic costs by inducing banks to pull back from lending to finance."The evidence does not support this thesis, the BIS said."A key finding is that the bulk of the adjustment has taken place through the accumulation of retained earnings, rather than through sharp adjustments in lending or asset growth.""In a sample of 82 large global banks, banks from advanced economies increased their assets by eight per cent between 2009 and 2012, while emerging economy banks increased their assets by 47 per cent. "However, European banks increased their lending more slowly than banks based in other regions. "Among the advanced economy banks, a reduction in risk-weighted assets relative to total assets also played a role, albeit a secondary one. More profitable banks expanded assets and lending faster than others."The BIS said: "There is some evidence for the importance of starting points - banks that came out of the crisis with relatively low levels of capital were more likely to pursue adjustment strategies involving slow asset growth."