A look at how The Banker calculates its Top 1000 World Banks ranking.
The Banker’s Top 1000 World Banks ranking tracks the world’s largest bank holding companies ranked by Tier 1 capital. Wherever possible, we use consolidated figures. Foreign-owned subsidiaries are included in the country breakdown starting on p216, which covers 91 countries and 1232 banks.
The rankings are based on the definition of Tier 1 capital as set out by Basel’s Bank for International Settlements (BIS). The definition is stricter than total stockholders’ equity and covers only the core of the bank’s strength – the shareholders’ equity available to cover actual or potential losses (see table, right). Goodwill is deducted from Tier 1.
The object of the survey is to show the banks’ soundness in relation to the Basel requirement of a minimum ratio of Tier 1 capital to risk-weighted assets of 4% (increasing to 7% by 2019), and a minimum ratio of total capital to risk-weighted assets of 8%. The rules adopted by individual countries’ regulatory authorities vary and we have accepted national regulatory definitions of Tier 1 capital in these rankings. Wherever possible, the total assets figures shown exclude third-party items such as acceptances, guarantees and securities held with third parties.
Pre-tax profits are used to show banks’ performance, and the figures for real profit growth take inflation into account. The profit-on-capital ratios are calculated using the average of the latest and previous years’ capital figures. The non-performing loan column refers to the gross non-performing loans as a percentage of the total loan book.
We have excluded banks with latest available figures prior to January 1, 2010, even though they may still be operating.
As cross-border mergers continue, a number of banks have disappeared from the Top 1000 listing through consolidation into their new parent banks’ accounts but remain a significant presence in their country of origin. In an attempt to reflect this, the Top 1000 by country listing continues to include banks that are foreign-owned provided that their Tier 1 capital is above the lowest limit of the Top 1000 listing. These banks are denoted ‘FOS’ in the world ranking column.
Definitions:
Year-end: In order to produce a more accurate ranking, which compares bank performance over the same time period, the 2011 Top 1000 only includes banks for which we held 2010/2011 year end data on our production deadline of May 31, 2011.
Tier 1 capital: Tier 1 capital, as defined by the latest BIS guidelines, includes loss-absorbing capital, that is common stock, disclosed reserves, retained earning (excluding current year results) and minority interests in the equity of subsidiaries that are less than wholly owned. It excludes cumulative preference shares, hidden reserves and revaluations reserves, subordinated debt and long-term debt; these are defined as Tier 2 capital, which we track but do not include in our Top 1000 ranking. Tier 1 capital figures are net of regulatory deductions outlined by the BIS committee on banking regulation.
Assets: This refers to banks’ total assets and excludes third-party items such as acceptances, guarantees and securities held with third parties, and off-balance-sheet assets.
CAR latest: The capital/assets ratio is commonly referred to as the ‘leverage ratio’ (Tier 1 capital/total assets), although some jurisdictions, notably the US, have further regulatory definitions for capital and assets used in calculating leverage ratios, which will differ from those used in The Banker’s ranking.
Profits: All profits are before tax to make the figures comparable on a worldwide basis, and are net of provisions for impairment. Profit figures also include discontinued operations.
RPG latest: Real profit growth figures are adjusted for inflation. We have used inflation rates for the 12 months preceding the end of the accounting period to calculate these figures.
PAC latest: Profit on average capital measures banks’ profitability on Tier 1 capital (profits divided by the average Tier 1 capital at the end of the two most recent accounting periods).
ROA latest: Return on assets is a measure of banks’ profitability on total assets (profits/total assets).
BIS total capital ratio: The BIS capital adequacy ratio is used to assess the soundness of banks’ capital in relation to risk-weighted assets. The BIS guidelines require banks to maintain Tier 1 capital equal to a minimum of 4% of total risk-weighted assets and total capital equal to a minimum of 8% of risk-weighted assets. Basel III guidelines are likely to change these requirements. Risk-weighted assets are calculated by applying different risk weightings on assets from 0% to 100% depending on individual assets’ riskiness and potential for default.
NPL ratio: This ratio refers to the percentage of non-performing loans to the total loan book.
% change: These are calculated on a year-on-year basis only.
LTD ratio: Ratio of gross total loans to gross total deposits.
