The Asian Banker 500 Strongest Banks 2019 Briefing: Stronger Headwinds Ahead

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The Asian Banker 500 (AB 500) 2019 is an annual evaluation of the 500 largest banks in the Asia Pacific region for the financial year 2018. This year’s evaluation covers the 500 largest banks, from 20 countries and territories

The Asian Banker 500 is the world’s first and most authoritative annual ranking of the “Strongest Banks based on Balance Sheets strength.

It is based on a transparent and comprehensive scorecard that looks at six key criteria that define and determine financial strength, namely: scale or size of assets, asset growth, capital adequacy, liquidity profile, profitability and asset quality.

The evaluation is conducted between March and August each year when banks’ annual financial results become available.

Among the top ten largest banks in this year’s ranking, six Chinese banks registered average asset growth of 6.6% in 2018, slower than that of 7.3% in 2017, while asset growth of the four Japanese banks slowed to 0.3% from 1.2% in the previous year.

This year’s evaluation covers the 500 largest banks, from 20 countries and territories, with a combined $58.4 trillion in assets, $30.4 trillion in net loans, $40.5 trillion in deposits and $416 billion in net profit.

Chinese banks continue to dominate the list with a representation of 163 banks. Their total assets accounted for 50.3% of the combined assets of the 500 largest banks in Asia Pacific. There was a noticeable drop in the number of Japanese banks recorded from 99 in the previous year’s evaluation to 92 this year, and thus Japanese banks’ share of total asset fell to 21.7% from 22.5% last year.

The drop can be partially attributed to regional bank mergers in Japan. Some struggling Japanese banks such as Mie Bank and Daisan Bank have consolidated as they seek to enhance efficiency and competitiveness.

Hong Kong banks demonstrated sustained financial strength. They have remained well capitalised  coupled with strong asset quality and profitability. However, they face a tougher operating environment in 2019. The slowdown in China and the US-China trade war have continued to exert a negative influence on the financial performance of Hong Kong banking system.

Meanwhile, the emergence of virtual banks will increase competition in the Hong Kong banking sector, which is already highly competitive. The eight virtual banks have been preparing to build their deposit bases from scratch. Some banks such as HSBC, Hang Seng Bank, Bank of China (Hong Kong) have cut fees in response to the potential threat of these branchless, internet-only banks. Overall, the impacts on traditional banks will be limited in the next one or two years.

Besides, the political uncertainty has weighed heavily on Hong Kong banks’ financial results in 2019. The anti-government protests have caused damage to the city’s retail and tourism sectors. Consequently, economic growth has been slower.

In addition to these challenges, the slowing economic growth and the ongoing US-China trade tension are posing a risk for Asia Pacific banking sector. Banks are also facing fiercer competition from new comers. Nonetheless, the banks in the region have been continuing their digital transformation and reshaping the business models to boost competitiveness. 

Industrial and Commercial Bank of China remained the largest bank in the region. Meanwhile, the top ten ranking remains relatively unchanged, with the only exception of Sumitomo Mitsui Financial Group moving up the ranks to seventh place, overtaking Mizuho Group. There are two Cambodian banks on this year’s list, including Canadia Bank that has a strong asset growth of 34% year-on-year (yoy).

The capitalisation of Vietnamese banks remained weak, especially the state-owned commercial banks, but they must meet the CAR requirement of at least 8% as per the State Bank of Vietnam’s Basel II standards starting from January 1, 2020.

Besides, banks in China, India and Taiwan are also less capitalised. The weighted average CAR of banks in these three markets stood at around 13.9% in 2018. Indian banking sector delivered improved overall performance, but it is the only banking sector that posted negative ROA and ROE. The government of India has continued to inject more capital to maintain the capital levels of banks.

Chinese banks, especially the smaller ones, are becoming increasingly capital constrained, as bank lending growth has continued to outpace the growth of bank deposits and capital adequacy requirements have been stricter in the country.

Hang Seng Bank topped the annual ranking of AB500 Strongest Banks by Balance Sheet, as the bank fared well in most indicators. It has strong profitability, with a high return on assets (ROA) of 1.6% and a low cost to income ratio of 29.4% in 2018. Besides, the bank remained well-capitalised, and its gross non-performing loan (NPL) ratio stood at only 0.24%.

Banks in Hong Kong and Singapore remained the strongest in this year’s evaluation, with the weighted average strength score at 4.06 and 3.61 out of 5, far above the average strength score of 3.2.

Hong Kong banks achieved a high strength score in all areas, except balance sheet growth. Their average score in the area of profitability is the highest in the region, as they benefited from improved net interest margin in 2018. Despite increasing investment in technology, the weighted average cost to income ratio of Hong Kong banks on the list was further enhanced to 37.5%, which was second only to Chinese banks. Their overall asset quality was better in 2018, with the average gross non-performing loan (NPL) ratio stabilising at 0.52% and the provision coverage ratio increasing to 127% from 106% in the prior year.

On the contrary, Bangladesh and India continued to record the lowest average strength score among the 20 countries and territories, at 1.71 and 2.14, respectively, which is mostly triggered by their poor asset quality and low profitability. On average, the ROA of Indian banks remained negative, and their cost to income ratio was higher at 53.3% from 50.6%. The average gross NPL ratio of Bangladeshi banks stood at 20.3%, the highest in the region.

Although there were slight improvements in the overall asset quality of Asia Pacific banking sector in the financial year 2018, asset quality remains a crucial issue in the region. While India, Indonesia and Pakistan saw their banks’ asset quality improved, banks in Bangladesh, Brunei, the Philippines and Sri Lanka recorded higher average gross non-performing loan (NPL) ratios.

This year’s Bank Watch List includes fifteen Indian banks, four Bangladeshi banks and one each from Japan and Pakistan. Among all the 20 countries and territories, the asset quality of banks in Bangladesh and India remained the weakest. The lower formation of new bad loans,higher recoveries and resolutions from large stressed assets under the Insolvency and Bankruptcy Code (IBC) contributed to the improved asset quality of Indian banks. Nonetheless, the levels of non-performing assets were still higher than in the financial year ended 31 March 2017.

The Middle East and Africa 200 largest banks evaluation covers banks from 16 countries, namely Bahrain, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia and United Arab Emirates (UAE), Algeria, Egypt, Ghana, Kenya, Mauritius, Morocco, Nigeria and South Africa, and ranks them according to both asset size and overall strength.

The combined total assets of the banks under the MEA200 evaluation increased by 1.6% year-on-year to $3.54 trillion in 2018 from 2017 and the combined total net profits were up by 5.9% to $56.4 billion. The top 20 largest banks by assets in the region included five Saudi banks, four South African banks, four UAE banks, two Egyptian banks, two Kuwaiti banks and one each from Jordan, Morocco and Qatar. Egypt and UAE have the highest representation in the MEA list, with 20 banks coming from each of the two countries. Meanwhile, UAE and Saudi Arabia hold the highest combined bank assets. The combined assets of banks in UAE and Saudi Arabia, South Africa and Qatar on the list accounted for 60.2% of total assets in the Middle East and Africa. The total assets of banks in Algeria, Ghana, and Mauritius accounted for less than 1%.

Qatar National Bank, First Abu Dhabi Bank and Standard Bank Group remained as the top three largest banks by assets in the Middle East and Africa. Total assets of Qatar National Bank surpassed that of First Abu Dhabi Bank and Standard Bank Group by 17% and 60%, respectively.

Al Rajhi Bank, Saudi Arabia’s second-largest lender by assets, tops the annual ranking of the strongest banks in the Middle East. Meanwhile, South Africa-based FirstRand emerged as the strongest bank in Africa.

With the weighted average strength score of 3.93 and 3.76 out of five, banks in Saudi Arabia and UAE remain the strongest. Saudi banks have continued to deliver robust financial performance, taking top five spots in the top 10 strongest banks list in the region. Al Rajhi bank, the strongest bank in the region, showed good performance in profitability, especially in ROA and cost to income ratio, and maintained healthy asset quality and robust capitalisation and liquidity.

Meanwhile, the top 10 strongest banks in Africa included four South African banks, three Egyptian banks, two banks from Mauritius and one bank from Morocco. Banks in South Africa and Egypt achieved the highest weighted average strength score at 3.43 and 3.16 out of five, respectively.

The balance sheet growth in the South African banking sector accelerated in 2018. South African banks maintained adequate capitalisation and liquidity and sound asset quality. However, their average cost to income ratio stood at a high level of 58.1%, only lower than that of Nigeria. FirstRand, the strongest bank in Africa, posted lower cost to income ratio and  gross non-performing loan (NPL) ratio compared to its South African peers.

This year we have introduced the first ranking of the largest and strongest Islamic banks. The evaluation covers 100 largest Islamic banks from 22 countries with $903.9 billion in combined assets, $583.4 billion in net loans, $662.4 billion in deposits and $12.9 billion in net profit.

Saudi Arabia-based Al Rajhi Bank emerged the largest Islamic bank and also the strongest Islamic bank. The bank saw its total assets expand by 6.4% to $97.3 billion, larger than that of Dubai Islamic Bank, the second-largest Islamic bank, and Maybank Islamic, the largest Islamic bank in Asia Pacific by 60% and 79%, respectively.

The top ten largest include eight banks from the Middle East and two banks from Asia Pacific. On aggregate, the top ten accounted for 51.3% and 67.7% of combined assets and net profits respectively.

Malaysia, Saudi Arabia, UAE, Qatar and Kuwait are the largest markets in terms of the Islamic bank assets, with their aggregate assets representing 79% of the combined assets of the 100 largest Islamic banks. The Islamic banks in Malaysia, including both domestic and foreign Islamic banks, held six out of the top 20 ranks and 16 of the total 100. Notably, the combined assets of all Malaysian Islamic banks accounted for 23% of the 100 largest Islamic banks’ assets.

The 100 largest Islamic banks posted an average asset growth of 8% It is higher than the average asset growth rates recorded by the 100 largest banks in the Middle East and the 500 largest banks in Asia Pacific, at 5.3% and 5.6%, respectively.

Although there are only four Saudi banks on the list, they are among the top 20 largest banks by assets. Besides, two banks from Iran made up 4% of combined assets.

Al Rajhi Bank tops the list, while Dubai Islamic Bank and Kuwait Finance House came in second and third. The top ten strongest Islamic banks include three Saudi banks, two Malaysian banks, two Qatari banks, and one bank each from Kuwait, Pakistan and the UAE.

On average, Saudi Arabia achieved the highest strength score at 3.9 out of 5, followed by Kuwait (3.7), Qatar (3.5) and UAE (3.3). The profitability and asset quality of Saudi Islamic banks are strong, and they maintained a robust capital position and ample liquidity. Their average return on assets (ROA) reached 2.5%, compared to 1.5% recorded by all the 100 banks.


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