THE Royal Bank of Scotland will attempt to silence its critics this week by announcing a hike in its full-year dividend.

Alongside record pretax profits of more than £10 billion, the bank is understood to be planning an increase of about 5% in the annual payout.

The move follows dividend hikes announced last week by Barclays and Lloyds TSB – as predicted by The Sunday Times.

It also follows intense market speculation suggesting that RBS would have to raise new capital to repair its balance sheet following its acquisition of part of Dutch bank ABN Amro last year.

Analysts have criticised RBS for allowing its capital ratios to drop too low as a result of the deal, which was struck just as the global financial markets began to go into meltdown.

The raised dividends from RBS, Barclays and Lloyds TSB provide further evidence that Britain’s major high-street banks have weathered the credit crunch better than rivals in the US and Europe.

In spite of the Northern Rock crisis and huge hits to profits announced by mortgage banks Alliance & Leicester and Brad-ford & Bingley, the biggest banks have proved resilient.

HBOS, Britain’s biggest mortgage lender, will also announce an increase in profits and a raised dividend this week. It is expected to announce pretax profits of around £5.8 billion, up about 4% on last year. The full-year dividend will be boosted by a substantial rise in the first half of the year, before market conditions turned for the worse.

Standard Chartered, the emerging-markets bank, is also expected to post a 20% rise in profits to around £3.9 billion. The rise in profit comes in spite of problems at the bank’s off-balance sheet funding vehicle Whistlejacket, which has plunged into administration.

But RBS’s increased dividend is likely to be the biggest surprise in the banking sector.

RBS is expected to announce about £400m of additional write-downs stemming from its exposures to investments affected by the US sub-prime lending crisis. But the profit rise will still represent an increase of some 10% year on year.

Analysts have been fretting about the bank’s core capital ratio, which has dipped to about 4% following the deal.

But it is understood that Sir Fred Goodwin, the bank’s chief executive, will stress that the group is comfortably within its overall regulatory capital limits.

The decision to raise the dividend is intended as a means of proving that the bank has no looming cash crisis.

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