LONDON (Reuters) - European banks are set to hand investors a record 120 billion euros ($130 billion) in dividends and share buybacks this year, analysts say, returning more of the profits reaped from a period of higher interest rates.

Bank of Ireland on Monday became the latest lender to announce a hike in payouts, joining others including BNP Paribas (OTC:BNPQY), Deutsche Bank and Santander (BME:SAN) in promising more cash for their investors.

Switzerland's UBS this month pledged to restart its buyback programme, while state-owned Italian lender Monte dei Paschi di Siena announced it would pay its first dividend in 13 years.

UniCredit said it was giving away all of its 2023 profits - 8.6 billion euros including 5.6 billion euros worth of buybacks - and that it would share 90% of 2024's net profit.

Across European banks, dividend payouts for 2024 will total nearly 80 billion euros, with buybacks taking overall capital returns to shareholders close to 120 billion euros, a record high, Bank of America analysts estimate.

Over the next 15 months, which takes in the final dividend payments yet to be made for 2023 results, as well as the forecast 2024 dividend and planned buybacks, banks are expected to have paid out a total of 172 billion euros - about 17% of their market capitalisation, BofA said.

Banks, after years of depressed share prices as interest rates hovered near zero, have reaped huge profits from the gap between the rates they charge borrowers and how much they pay for deposits.

This has lifted their share prices, and executives have turned to dividends and buybacks as the favoured way to deploy their excess capital.

UBS analysts estimate the top 50 European banks will have a dividend yield of 7.3% in 2024, up from 5.8% in 2022. The yield is expected to drop to 7.2% in 2025 and then hit 7.4% in 2026, UBS analysts calculate.

Still, many lenders' share prices trade significantly below their book value and concerns about falling interest rates and a weaker economic outlook is worrying some investors.

Analysts expect overall bank capital returns to drop back from record highs from next year as buybacks become less generous, with BofA estimating distributions for 2025 of between 110 and 120 billion euros.

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