UK banks paid out nearly £14 billion in dividends last year, more than any other sector as shareholders pocketed more cash while higher borrowing costs soared, according to new analysis.

HSBC dominated UK dividend payments over 2023, global financial services firm Computershare found.

Between them, banks handed out £13.8 billion in dividends, meaning cash generated from profits that is awarded to shareholders.

It was nearly a third higher than the total the previous year and marked the first time it was the country’s highest-paying sector since 2007, just before the global financial crisis.

HSBC returned its quarterly dividend payments last year following the pandemic after tripling profits over the first three months of the year.

Other major lenders including Lloyds and NatWest grew their profits in 2023 as they benefited from higher interest rates, meaning they made bigger returns on loans.

Until recently, most have reported rising net interest margins – an important measure for banks showing the difference between what they pay out in deposits and what they earn from lending.

Higher rates help boost income for banks and therefore enable them to pay more to shareholders.

Across all the UK companies listed on the main market of the London Stock Exchange, £90.5 billion was paid out in dividends last year.

Excluding on-off special payments, general dividends rose to £88.5 billion, 5.4% higher on a constant currency basis than the previous year.

It comes during a time of greater pressure on households who have been squeezed by higher living costs including food and electricity, and higher mortgage rates affecting homeowners and hopeful buyers.

But Mark Cleland, head of UK issuer services at Computershare, said the rise in banking dividends last year was “remarkable”.

He said: “Thirteen years of rock-bottom interest rates made it very hard for the sector to make profits, but the need to quell inflation with higher interest rates means the last two years have delivered a dramatic turnaround.

“Bank investors are reaping the dividends of this reversal and we expect them to see even larger payouts in 2024.”

Last year, banks came under increased pressure to prove their financial strength after the collapse of the US’s Silicon Valley Bank and European banking giant Credit Suisse.

The Government, Bank of England and several lenders looked to soothe concerns among investors and customers by insisting the UK banking sector was “resilient” and not vulnerable to the same weaknesses as the failed international banks.

Meanwhile, higher energy prices drove a nearly 16% increase in dividends from the oil sector, with Shell coming in as the second-highest dividend payer in the UK.

The top five companies – HSBC, Shell, Glencore, British American Tobacco and Rio Tinto – made up just over 31% of all UK dividend payments last year.

Regular payments are predicted to edge up by 2% in 2024 to total £89.8 billion as higher interest rates continue to work their way through the economy and banks keep growing their payouts, Computershare said.