A look at how The Banker calculates its Top 1000 World Banks ranking.
The Banker’s Top 1000 World Banks ranking of bank holding companies is based on Tier 1 capital. It excludes banks with latest available figures prior to January 1, 2011, even though they may still be operating. Wherever possible, we use consolidated figures. Foreign-owned subsidiaries are included in the country breakdown, which covers 1237 banks in 105 countries.
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. Wherever possible we have also excluded current year earnings, even where national regulatory authorities allow their inclusion.
The survey aims to show banks’ soundness in relation to the Basel guidelines on capital adequacy. The rules adopted by individual countries’ regulatory authorities vary and, with the exception of excluding current year earnings, we largely accept national regulatory definitions of Tier 1 capital in these rankings. Where accounts are available according to both International Financial Reporting Standards (IFRS) and national accounting standards, we have used IFRS accounts. The total assets figures shown generally exclude third-party items such as acceptances, guarantees and securities held with third parties.
We use pre-tax profits as our main measure of banks’ performance. This year, return-on-capital ratios have been calculated using only current year figures for pre-tax profit and Tier 1 capital. The non-performing loan column refers to total non-performing loans as a percentage of gross total loans.The Banker’s definition of non-performing loans is based on loans with outstanding payments of more than 90 days, plus all non-accrual loans. The ratio takes into account neither provisions nor third-party guarantees.
The Top 1000 World Banks ranking does not include subsidiaries of banks already included in the ranking. However, the Top 1000 by country listing continues to include foreign-owned subsidiaries provided their Tier 1 capital would be large enough to be ranked in the Top 1000. 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 2011/2012 year-end data on our production deadline of May 31, 2012.
Tier 1 capital
Tier 1 capital, as defined by the latest BIS guidelines, includes loss-absorbing capital, that is common stock, disclosed reserves, retained earnings (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 (where disclosure is available). Where possible, we also exclude current years’ earnings to allow more accurate cross-border comparisons across banks.
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.
ROC latest
Return on capital measures banks’ profitability on Tier 1 capital (profits/Tier 1 capital).
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 level of banks’ capital in proportion to risk-weighted assets. Basel III guidelines, which will be phased in incrementally until 2019, will increase the amount of capital banks must hold. 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. Where banks have calculated the ratio according to both Basel I and Basel II, we take the Basel II calculation.
NPL ratio
This ratio refers to the total non-performing loans as a percentage of gross total loans. The Banker’s definition of non-performing loans is based on loans with outstanding payments of more than 90 days, plus all non-accrual loans. The ratio takes into account neither provisions nor third-party guarantees. These are calculated on a year-on-year basis only.
Loans/assets ratio
Represents the proportion of loans in a bank’s total balance sheet. Where possible, we take gross total loans including loans to banks and do not deduct provisions from the calculation.
RWA/total assets
This ratio is calculated by dividing total risk-weighted-assets assets (which are used to determine the level of regulatory capital banks are required to hold) by total assets. The RWA/total asset ratio reflects the perceived riskiness of the assets held by a bank. The lower the percentage, the lower the risk weightings that have been applied to a bank’s assets in its calculation of its BIS total capital adequacy ratio.
Cost/income ratio
This is the ratio of total general and administrative costs (ie. staff, sales and marketing, IT, and premises) divided by total operating income. We do not include depreciation or amortisation in this calculation. Total operating income is calculated as the sum of net interest income and net non-interest income.
% change
These are calculated on a year-on-year basis only.
Notes
Prior to January 2011, the Venezuelan government operated a two-tiered exchange rate system. US dollar comparisons between 2010 and 2011 results are therefore not valid.
This year’s data for Greek banks includes both statutory and pro-forma data.
