The banking landscape has altered dramatically since the global financial crisis made its impact felt five years ago. The Banker looks at the performances of the leading banks in the world to see which financial institutions have coped best.
There is no perfect way to measure bank performance. Tier 1 capital is The Banker’s chosen measure for the Top 1000 World Banks ranking and was picked as it gives the best indication of a bank’s strength and solidity. We still think that of all the individual measures available it is on balance the best.
Editor's choice
But as the global financial crisis demonstrated, large banks with high absolute levels of capital can still run into difficulties if their risk management is poor, their assets deteriorate and, critically, they run out of liquidity.
Sure and steady
These same banks may have been among the top performers in return-on-capital and profits terms when the markets were booming before the crisis, but they did not necessarily fare well during troubled times and some incurred high losses. A better outcome is a bank that earns steady profits over a longer period, rather than one that outperforms and then hits the buffers.
At the same time, banks that simply hold huge amounts of capital are unlikely to reach this goal. The Top 1000 contains a number of banks with large amounts of capital in relation to assets that do not perform the basic transformational functions of banks and also give poor returns.
From an investors’ point of view – and also from the standpoint of the general health of the financial system – the best banks are those that find a middle way between holding sufficient capital to be safe and yet not so much that they are unable to make effective returns.
With this in mind, The Banker engaged in the following exercise – to track banks over a four-year period since the crisis using five different performance measures and combining them into one ranking. This is done for the entire world (see table bottom right on opposite page) and then on subsequent pages for western Europe, central and eastern Europe, Asia (excluding China and Japan), China, Japan, North America, Latin America, the Middle East and Africa.
The other five tables on each page are 'the ingredients' of the overall rankings – change in Tier 1 capital, average return on assets, change in assets, average return on capital and capital assets ratio.
The thinking behind using these ratios is that change in Tier 1 and total assets represents growth; profits are represented by return on capital and assets; and leverage by the capital assets ratio. As a way of scoring them, 25 points have been allocated to the bank in first position (or 15 in the case of the central and eastern Europe, and Africa regional tables, 20 for Latin America), 24 points to the second, and so on, for all the five ingredients tables, and then added up to give the results. The overall tables in the bottom right-hand corner contain the banks listed by scores obtained in this way.
Intriguing results
The results are intriguing. Banks that are typically in the very high spots in the Top 1000 do not necessarily replicate this performance in this ranking. China Construction Bank (CCB), for example, which ranks below ICBC in the Top 1000 (CCB is fifth, ICBC is first) comes out ahead in the global ranking of the best banks since the crisis. In fact, all top five places in this ranking are held by Chinese banks.
Similarly, consider the varying fortunes of the UK's HSBC and Standard Chartered in the western European table. HSBC places fourth. In the other regional and country tables, Nomos Banks comes top in central and eastern Europe (331st in the Top 1000), pushing Sberbank (34th in the Top 1000) into second place.
Axis Bank (placed 172 in the Top 1000) tops the Asia table excluding China and Japan. In the Chinese table, Chongqing Rural Commercial Bank is number one (199th in the Top 1000); Japan’s winner is Sumitomo Mitsui Financial Group (16th in top 1000); Capital One Financial Corporation triumphs in North America; BTG Pactual in Latin America; Qatar Islamic Bank in the Middle East; and Guaranty Trust Bank in Africa.
The full results:
