Asean vietcombank

Indonesia’s banks have been toppled from their dominance of the region in terms of performance, with Vietnam’s institutions showing a strong result in this year’s rankings. 

Maintaining economic growth in the shadow of Covid-19 has been the main challenge of the Association of Southeast Asian Nations’ (Asean’s) banks over the past year. The region took a hard economic hit from the pandemic, as lockdowns closed borders and the tourism sector — vital for many of its countries to maintain a strong economic performance — dried up.

The impact is nowhere clearer than in the gross domestic product (GDP) numbers for 2020. According to the International Monetary Fund, Indonesia saw its GDP fall by 2.1%, Singapore 5.4, and Malaysia by 5.6%. Meanwhile, Thailand’s GDP fell by 6.1% and the Philippines’ by 9.5%. However, Vietnam bucked the trend, as its GDP increased by 2.9%. For the region’s banks, it has been a challenging time that has tested their strength, liquidity and soundness.

The Banker’s Top 30 Asean Banks ranking demonstrates the solid gains the region’s banks made in Tier 1 capital over the past year, albeit with a sharp decline in profits. Dominating the main ranking, Singaporean financial institutions take the top three positions, maintaining the same positions as the previous year. The remaining positions are split between banks from Malaysia, Thailand and Indonesia.

Almost all of the banks in the top 10 managed to increase their Tier 1 capital, with the exception of two Indonesian banks, Bank Rakyat Indonesia and Bank Mandiri. However, all 10 saw their profits decline, with fifth-place Bangkok Bank seeing the biggest drop (53.4%). Indeed, only four banks in the ranking recorded an increase in profits in 2020 — Thailand’s TMB Bank being the highest placed in 16th place. It was able to hold onto the same spot as last year, in part thanks to a 40.6% jump in profits.

Even spread

Digging into the best-performing bank metrics tells a different story. No single country or bank dominates the rankings, showing the various strengths, and indeed weaknesses, that are present within each country’s banking system. Singapore’s banks fail to make it into the top 10 overall performance table, as with the 2020 results. Indeed, DBS, which dominates the main ranking, only manages to make it into three lists for performance: growth, asset quality and liquidity. The country performed well in the asset quality category, occupying three places. The only other showing was in the liquidity category, where the Oversea-Chinese Banking Corporation and DBS took the ninth and 10th place, respectively.

Indonesian banks take the top two places in the overall performance table, but this is a big decline from last year’s results, when the country’s banks occupied the top four spots, as well as the sixth place in the table. Instead, this has been a strong year for Malaysia, with four banks placing in the top 10 overall, up from just one last year. Malaysia also showed strong results in the operational efficiency and asset quality tables in particular, occupying half of the places in these top 10 tables, and taking top spot in both.

Although none of its banks make it into the top 10 overall performance list, Thailand does come up with some strong results. Its banks dominate the growth table, with Bangkok Bank, Krungthai Bank and Kasikornbank taking the first, fourth and sixth spaces respectively. Kasikornbank also makes an appearance in the leverage table, taking eighth place. TMB Bank appears in the listings for profitability, return on risk and soundness. In the Tier 1 capital ranking, Bangkok Bank climbs into the top five, moving up two positions compared to the 2020 ranking.

Success story

However, Vietnam’s banks are arguably the big success story of the 2021 performance categories.

After seeing four banks in the 2020 main ranking, but failing to see any place within the best-performing lists, this year Vietnam has two banks in the overall performance list. Vietnam Prosperity Bank (VPB) took the highest placing for a Vietnamese bank, in third place, while Vietcombank placed fifth. Both banks also appear throughout the tables, with VPB coming out top for profitability, as well as second in operational efficiency and return on risk. The bank also places in the top 10 in four other categories. Vietcombank, meanwhile, sees more modest placings in the tables, but still ranks in five of the best-performing tables. However, neither bank makes the cut when it comes to liquidity.

Vietnam’s banks are arguably the big success story of the 2021 performance categories

The Vietnamese banks’ success comes even though only three made it into the main rankings this year and all are in the bottom third. However, looking at the banks’ pre-tax profit provides some insight. Vietcombank rises five places to 21st, with just a small contraction (0.23%) in pre-tax profits. VietinBank, on the other hand, climbed one place to 24th with pre-tax profits jumping by 45.1% — registering the biggest increase in profits of this year’s top 30. Meanwhile, VPB has entered the rankings in 26th place, and saw a 26.1% increase in pre-tax profits.

Overall, there were four new banks in the Tier 1 ranking this year, with Malaysia Building Society and its compatriot Affin Bank and Philippines’ China Banking Corporation taking up the last three places in the top 30.

The results of these banks may well be thanks to the robust efforts of their respective governments to curtail the Covid-19 pandemic. Thailand has seen around 80,000 confirmed cases, while Vietnam has seen fewer than 3500 confirmed cases by mid-May. With uncertainty around emerging variants, banks will likely be looking with concern at the prospect of further restrictions battering their pre-tax profits, and how this will balance against their Tier 1 capital. For the banks that scored well in the performance results, they may find some consolation in their operational strength providing them with the support needed to weather the remainder of the coronavirus storm.

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