Which banks are likely to be seen in the Top 1000 ranking in 2006?
This year, The Banker is publishing a list of the Top 50 Contenders for entry into next year’s Top 1000 listing of world banks. The lower reaches of the Top 1000 can be extremely volatile because explosive growth in domestic markets allied to a strong or strengthening currency can propel a bank into the listing, while the converse can push banks out of the listing. Over the past two years, the majority of currencies have strengthened against the dollar. This raises the dollar values of balance sheets and income statements of non-US banks even if there had been no growth in their markets. However, there has been continued growth particularly in Asia, with China and India to the fore, in the Gulf states, on the back of high oil prices, in western Europe (with the possible exception of Germany), and progress in Latin America.
Banks’ loan books have increased. As the loan book rises, prudential regulation dictates that capital should rise to cover the risk-weighted value of those assets and consequently banks increase capital through share issues; through the marketing of hybrid capital instruments that can be counted as Tier 1; or simply by retaining more of their profit in reserves. Thus, the threshold of the Top 1000 has risen from $140m in the 2002 listing to $153m in 2003, $172m in 2004 and $200m in 2005.
Banks contending for a place in the Top 1000 must keep up with these trends. Helping to free up places a little is industry consolidation.
Which banks prevailed? Our listing is headed by five banks, Banco Rural (Brazil), Bank Zenit and the Russian Bank for Development (both from Russia), Banco Security (Chile) and Istituto Centrale delle Banche Popolari Italiane (Italy), which would have appeared in The Banker’s Top 1000, had their latest figures been available when it was being compiled. On their previous figures, they were in or just outside the next 50 banks.
The US dominates the contenders with 13 banks in the listing, followed by Germany with six, Italy (three), Chile, China, India, Indonesia, Japan and Russia (two each), and a further 16 countries with one representative each. Not all our Contenders will make it because they may fall prey to an acquisitive bank either in their domestic market or from abroad, or their economic situation may change radically through unforeseen circumstances.
HOW WE DID IT
Data from the banks falling immediately outside the Top 1000 was analysed in terms of Tier 1 capital (in $m), growth in Tier 1 capital in local currency for the current year and the previous year, and for asset growth in local currency for the same periods. An assessment was then made based on the Tier 1 capital growth required to achieve this year’s Top 1000 threshold ($200m) and the growth potential of each bank based on the previous two years figures. It was assumed that the dollar exchange rate in each case would not move significantly over the rest of the financial year. Banks with minimal growth or which had seen reductions in Tier 1 capital and assets over the past two years were eliminated and then the remaining banks were ranked by Tier 1 capital to give the Top 50.
