ASIA

Credit Quality May Hinder Expansion Plans


While most of emerging Asia’s banks came out of the 2008 financial crisis with strong capital ratios and creditworthiness, the crisis had more of a negative impact on banks in some of the central Asian countries such as Kazakhstan—although recent indicators suggest that the economy and financial system there finally turned the corner in 2010. A common ambition among Asian banks, particularly those in emerging markets, is to grow their business outside their domestic market to become regional, or in some cases even global players, as is the case with some of the Chinese banks.

For most Asia Pacific banks, Fitch Ratings has a stable outlook for 2011. However, it has a more cautious outlook for Chinese and Vietnamese banks whose capital base and credit profile could be weakened by recent strong loan growth. The agency says asset-quality concerns could emerge in other countries too, with sectors such as real estate and export-led industries potentially seeing increased loan delinquencies. In Hong Kong, for example, as authorities look to dampen real estate speculation, analysts do not expect credit growth to be as pronounced in 2011.

Most banks in the region have a strong retail and corporate deposit base and Tier 1 capital ratios and should be able to meet new regulatory capital requirements comfortably. However, if loan growth increases above banks’ ability to generate capital, Fitch says banks in markets such as India may face a funding crunch. Concerns also remain about banks in Australia that rely on wholesale markets for funding. Most of the domestic economies in Asia are relatively robust and are characterized by steady growth, resulting in commensurate improvements in assets and profitability for the banks that service these markets. In Australia, for example, Fitch identifies a two-speed economy with strong growth likely to continue in certain industry sectors such as mining, but discretionary spending weakening, resulting in subdued credit growth in 2011. That could impact the net interest income that banks earn from lending.

Regional W inners

HSBC

HSBC takes the regional crown again this year, thanks to the rise in profitability across the Asia Pacific region (excluding its core market of Hong Kong), which contributed $5.7 billion in pre-tax profits in 2010, the largest percentage contribution (31%) in terms of underlying group pre-tax profits. The bank’s ongoing expansion in China and development of renminbi-based financial products to service the growing offshore market in renminbi remain key differentiators, as well as its strong banking franchise in countries such as India, and the expansion of its Islamic banking arm, HSBC Amanah, in Malaysia and beyond. It is also playing an enlarged role in helping small and medium-size businesses grow by providing credit facilities.

Stuart Gulliver, group CEO
www.hsbc.com

Country Winners-Asia

Armenia

HSBC Bank Armenia

Last year, HSBC Bank Armenia saw its pre-tax profit grow by 132% on 2009 levels to reach AMD 5.9 billion ($16 million). Assets grew 7% to AMD 145 billion, and the bank reported substantial growth (67%) in its corporate loan portfolio, which was reportedly the highest growth in commercial lending recorded by any bank. HSBC hopes to build on that growth this year, while maintaining loan quality. Overdue loans made up 7% of the bank’s total loan portfolio in December 2010, the bank reported, adding that that share had shrunk by February this year.

Astrid Clifford, CEO

www.hsbc.am

Australia

Commonwealth Bank of Australia

In February, Moody’s announced that it had placed on review for possible downgrade the long-term, senior unsecured debt ratings of Australia’s major banks, given what it termed their “structural sensitivity to conditions in the wholesale funding market.” Despite these pressures, CBA remains in a strong financial position, according to its 2010 annual report. It is one of the few global banks with an AA credit rating, and group net profit after tax (on a cash basis) in 2010 increased by a healthy 42% on the previous year to approximately A$6.1 billion ($6.2 billion), which is a strong performance given the decline in domestic demand for credit and continued uncertainty in the global economy. Return on equity (ROE) for 2010 increased to 18.7%. Its Tier 1 capital ratio as of June 2010 was 9.15%.

Ralph Norris, managing director and CEO

www.commbank.com.au

Azerbaijan

AccessBank

In early March, Fitch Ratings confirmed AccessBank’s BB+ long-term foreign currency issuer default rating (IDR) with a stable outlook, which according to the bank is the highest among private banks in Azerbaijan, alongside its individual rating of D based on support the bank is likely to receive if needed from its shareholders, which include the IFC and the European Bank for Reconstruction and Development (EBRD). In 2010 the bank reported a 23% increase in assets, which reached $460 million. Loans increased by 15% and deposits by 86%. The bank says it provided financing to more than 120,000 customers in 2010, an increase of more than 20%, with 30,000 of those clients based in the agriculture sector.

Andrew Pospielovsky, general manager and chairman

www.accessbank.az

Bangladesh

AB Bank

AB Bank was among Bangladesh’s first private sector banks. The Credit Rating Agency of Bangladesh assigned an AA3 long-term rating to the bank in 2009, based on its “strong capacity” to meet its financial commitments. In 2009, according to CRAB data, AB Bank had a well-diversified revenue stream including net interest, investment and commission income. In terms of the efficiency with which it managed its balance sheet, the bank had a low cost-to-income ratio of just over 29% and a gross nonperforming loan ratio of 2.75%. Its loans-to-deposit ratio was 85%. The bank has more than 70 branches throughout the country, as well as SME business centers.

Kaiser A. Chowdhury,
president and managing director

www.abbank.com.bd

China

ICBC

In recent months analysts have expressed concern about the asset quality of Chinese banks in the wake of strong loan growth, which was intended to shore up growth in the domestic economy. According to Moody’s, though, ICBC has maintained “strong financial metrics” and has reduced nonperforming loans (NPLs). ICBC says it leads the market domestically for customer loans and deposits.

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Deposits up until September 30, 2010, grew 15.5% on 2009 levels to 11.3 billion yuan ($1.7 billion). ICBC’s vice president, Luo Xi, says that in 2010, ICBC upheld its stable and prudent operation philosophy and maintained a sound and steady development trend. “ICBC realized a net profit of 166 billion yuan, up 28.3% from the previous year, with the growth rate 12 percentage points higher than that of the previous year, maintaining the [rank of] most profitable bank in the world,” he says. “Both NPL balance and NPL ratio have been declining for 11 consecutive years, and NPL ratio fell to 1.08%, a superior level among international peers.”

Yang Kaisheng, president

www.icbc.com.cn

Georgia

Bank of Georgia

Bank of Georgia says that in 2010 it grew faster than the Georgian banking sector as a whole. The biggest growth for the bank was in deposits, which increased by 58% (the rest of the market saw 29.4% growth in client deposits) and assets, which increased by 40.7% (compared to 21% asset growth for the rest of the market), according to figures supplied by the bank. Bank of Georgia has a substantial retail and corporate customer base and boasts an extensive network comprising more than 140 branches, more than 400 ATMs and more than 2,300 point-of-sale terminals. It also has a presence in Belarus, Ukraine, the UK and Israel.

Irakli Gilauri, CEO

www.bog.ge

Hong Kong

HSBC Hong Kong

HSBC says it consolidated its leading position in the Hong Kong market in 2010 with strong profitability boosted by sales across a number of business areas including investment, lending and trade. In its commercial banking business, balances increased by more than 70%. It also considers itself to be a leader in the development of offshore renminbi services, having led the development of RMB-based trade settlements, as well as other RMB-based investment and structured products, and certificates of deposit and RMB bond issuance in Hong Kong. The bank increased lending across its commercial banking and global banking and markets business lines. It is also a market leader in mortgages, credit cards and deposits.

Peter Wong, group managing director and CEO

www.hsbc.com.hk

India

HDFC Bank

HDFC Bank has India covered with an extensive network comprising more than 1,700 branches and more than 5,000 ATMs in more than 700 cities. In 2010 the bank reported growth of more than 33% in net profits, which reached Rs.28.1 billion ($633 million) for the nine months ended December 31, 2010, on the back of growth in net interest and other income. The bank’s total capital adequacy ratio remained well above the regulatory minimum at 16.3%. The bank provides a range of retail and wholesale banking services and services companies of all sizes, including multinationals.

Aditya Puri, managing director

www.hdfcbank.com

Indonesia

PT Bank Central Asia

Despite a challenging operating environment, Indonesian banks, Moody’s says, maintained their credit-worthiness. The ratings agency anticipates that their capital levels will remain stable over the next few quarters. The winner in this category last year, PT Bank Central Asia worked hard to improve its asset quality with a relatively low NPL ratio (gross NPL ratio of 0.6% as at December 2010). Ratings agencies commend its established franchise in transaction banking and deposit taking. The bank maintained good profitability levels in 2010, with profit after tax growing more than 24% on 2009 levels to 8.5 trillion rupiah ($974 million).

Djohan Emir Setijoso, president, director and CEO

www.klikbca.com

Japan

Sumitomo Mitsui Financial Group

Initial reports by ratings agencies in the wake of the recent earthquake and tsunami in Japan suggested that there was unlikely to be any immediate impact on the ratings of most of Tokyo’s major banks. Against such an uncertain backdrop, Sumitomo Mitsui Financial Group boasted impressive financial fundamentals. In the nine months ended December 31, 2010, consolidated gross profit increased by 237.2 billion yen year-on-year to 1.9 trillion yen ($22.5 billion). Net income on a consolidated basis for the same period was approximately 515.1 billion yen ($6.2 billion) on the back of growth in fee and commission and trading income. The group also made a dent in its non-performing loans with the ratio declining by 0.08% to 2.17% from March 31, 2010.

Koichi Miyata, president

www.smfg.co.jp

Kazakhstan

Halyk Bank

2010 marked a turning point for Kazakhstan’s economy and financial system, which recorded positive growth, says Umut Shayakhmetova, who chairs Halyk Bank’s management board. The bank’s results for 2010 reflected the positive changes in the local economy. “Among our main achievements, I would point out the significant increase in net income (up 128% year-on-year to $245.5 million), improvements in the loan portfolio quality, partial repayment of the government funds and change of outlook on the bank’s ratings by the international rating agencies to ‘stable,’” says Shayakhmetova. “We believe that the results of the year 2010 have created a good platform for the bank’s further development and operations in the future,” she adds. Halyk Bank says it leads the market in terms of market share of total retail deposits (20.8%), net income (61.5%) and fees and commission income (32.5%), as of September 30, 2010.

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"The results of the year 2010 have created a good platform for the bank’s further development"

"Among our main achievements, I would point out the significant increase in net income" – Umut Shayakhmetova, chairperson, Halyk Bank

Umut Shayakhmetova, chairperson of the management board
www.halykbank.kz

Kyrgyz Republic

Demir Kyrgyz

Late last year, the Turkish-owned bank announced that it would expand its branch and ATM network throughout the country. Demir Kyrgyz is one of the republic’s top five commercial banks based on assets and profitability. The EBRD recognized the bank for its volume of activity in the area of trade finance, particularly for letters of credit. At the end of 2009, the bank had assets totaling 3.8 billion som ($80 million). It provides a range of banking services to individuals and corporates.

L. Sevki Sarilar, chairman

www.demirbank.kg

Macau

ICBC Macau

ICBC Macau, which is the result of a 2009 merger between ICBC Macau and Seng Heng Bank, received its first-time ratings from Moody’s in August last year. The ratings agency assigned it a bank financial strength rating of D+, given its strong domestic franchise as Macau’s second largest bank based on deposits and loans and its ability to leverage the network of its parent ICBC in China. Moody’s stressed the strong linkages between ICBC China and its Macau operations, particularly in terms of “letters of credit refinancing referrals” from ICBC domestic branches, which Moody’s estimates make up 20% of ICBC Macau’s loan portfolio. Shen Xiaoqi, CEO of ICBC Macau, says that through the bank’s philosophy of being based in “Macau, radiating to the mainland, expanding in neighboring regions and extending to Portuguese-speaking countries,” it strives to accelerate business development, deepen intra-group domestic-overseas collaboration and enhance operating performance by leveraging ICBC’s advantages in network, brand, funding and technology. He says the bank established specialized operating centers to enhance its service and efficiency and to cater to the demand for financial services by SMEs and local residents. It also implemented a “state-of-the-art IT platform” developed and operated by ICBC, the parent company.

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ICBC Macau’s philosophy is to be based in "Macau, radiating to the mainland"

The bank aims to be "expanding in neighboring regions and extending to Portuguese-speaking countries" – Shen Xiaoqi, CEO, ICBC Macau

Shen Xiaoqi, CEO

www.icbc.com.mo

Malaysia

Maybank

In 2010, Maybank reported its best-ever performance, with net profits reaching $1.2 billion. According to its 2010 annual report, the bank has the largest asset base of any of the country’s banks—in excess of $100 billion—and a network comprising more than 1,700 branches. It provides a wide range of banking services to more than 18 million customers. Its ambitions encompass growing its presence not only in Malaysia but within the ASEAN region, including further expansion in markets such as the Middle East and China. Currently, 40% of its pre-tax profits come from international operations.

Abdul Wahid Omar, president & CEO

www.maybank2u.com.my

Mongolia

Khan Bank

Khan is the largest bank in Mongolia based on assets and boasts strong financial fundamentals in terms of profitability, net interest income and capital adequacy. It is also one of the few banks in the market rated by the major international ratings agencies. Total assets stood at 1.6 trillion Mongolian tugrik ($1.3 billion) as of December 31, 2010. Profit before tax in 2010 was in excess of 40.0 billion tugrik on the back of strong growth in net interest income. As of December 31, 2010, the bank had a capital adequacy ratio of 16.63%. It also boasts an extensive branch network with 500 branches.

Simon Morris, CEO

www.khanbank.com

Pakistan

National Bank of Pakistan

NBP is a market leader in terms of assets, deposits and advances. In 2010 it became the first Pakistani bank to surpass the Rs1 trillion ($11.6 billion) mark in terms of total assets. The bank says it has the highest market share among commercial banks for agriculture financing and offers a wide range of different financing schemes to support Pakistan’s agrarian economy. The bank has an extensive network comprising more than 1,260 branches servicing a diverse customer base. It says it has an edge over other Pakistan banks because of its expanded presence throughout central and south Asia and the Middle East.

Qamar Hussain, acting CEO

www.nbp.com.pk

Philippines

Bank of the Philippine Islands

Assets, loans and deposits of BPI all grew by double-digit percentages in 2010, with the biggest percentage growth in deposits (more than 24%). The bank has more than 800 branches and 1,600 ATMs. It was one of the more profitable banks in the Philippines, its 2010 net income representing a healthy 33% growth on 2009 levels to 11.3 billion pesos ($260 million). The bank also boasts strong capital adequacy with Tier 1 capital at 13.9%.

Jaime Augusto Zobel de Ayala, chairman

www.bpiexpressonline.com

Singapore

United Overseas Bank

In 2010, United Overseas Bank (UOB) notched up a record full-year post-tax profit of S$2.7 billion ($2.1 billion), a more than 40% increase over the profit it achieved the previous year. The bank attributed the strong growth in its profits to its regional strategy, which focused on increasing lending in its key markets, and growing fee income, which helped counter the negative impact generated by declining levels of net interest income. Non-interest income increased by more than 30% to S$2.3 billion. In Singapore UOB’s loans increased by just over 12%, but they grew by a heftier 23% in regional markets. The bank shored up its deposit base, which increased by 17%. Problem loans were also kept to a minimum with a non-performing loan ratio of 1.8%. The bank’s capital adequacy remains well above the new Basel III capital requirements.

Wee Ee Cheong, deputy chairman and CEO
www.uobgroup.com

South Korea

Shinhan Bank

Shinhan is Korea’s third largest bank, with a 13.5% share of system deposits, says Moody’s Investors Service. Shinhan is a major contributor in terms of profitability to the Shinhan Financial Group, its parent company. In 2010 net income increased more than 120% to 1.65 trillion won ($1.5 billion) on the back of strong growth in interest, non-interest and securities-related income. Most of the growth in its loan book (51% growth on 2009 levels) arose from lending to large corporates. The bank did see a slight increase in its nonperforming loan ratio from 1% in 2009 to 1.31% in 2010. Capital adequacy remained strong, however, with a BIS ratio of 15.9%.

Suh Jin-won, CEO

www.shinhan.com

Sri Lanka

Commercial Bank of Ceylon

Commercial Bank of Ceylon is a consistent winner of the best bank in Sri Lanka award. It reported strong profitability and growth in loans and deposits in 2010. According to the bank, loans and advances increased by more than 25% in 2010, and deposits by approximately 15%. The bank saw its nonperforming loan ratio fall from 6.84% in 2009 to 4.22% in 2010. The bank also says it recorded the highest total income and total interest income among Sri Lanka’s private sector banks. Net profit in 2010 reached a record Rs. 5.0 billion ($50 million). The bank also managed its balance sheet prudently, reporting a cost-to-income ratio of just over 54%.

A. L. Gooneratne, managing director and CEO

www.combank.net

Taiwan

Chinatrust Commercial Bank

Chinatrust beat a number of other competitors in the market based on its substantial growth in total net income in 2010 (996% year-on-year) and its large asset base. Total net income after tax in the 12 months to December 31, 2010, was approximately 13.2 billion new Taiwan dollars ($450 million). Total assets in 2010 reached approximately 1.8 billion NT dollars. Total return on equity reflected the much-improved financial results increasing from 1.03% in 2009 to 10.53% in 2010. Michael B. DeNoma, president & CEO of Chinatrust Commercial Bank says in 2010 earning momentum returned particularly with respect to net interest income, which grew 10.4% compared to 2009, driven by strong loan growth and mild net interest margin. “With the most effective platform delivering innovative financial products and professional services to key retail and corporate customers, we believe Chinatrust will gain more opportunities and profits,” says DeNoma. “This, in turn, will serve as a solid foundation for generating sustainable shareholder value in the years to come.”

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We have "the most effective platform delivering innovative financial products and professional services"

We believe that will help "Chinatrust gain more opportunities and profits" – Michael B. DeNoma, president & CEO, Chinatrust

Michael B. DeNoma, president & CEO

www.chinatrust.com.tw

Thailand

Siam Commercial Bank

2010 marked another successful year for Siam Commercial Bank (SCB), says Kannikar Chalitaporn, the bank’s president. She says the bank earned a strong net profit of 24.2 billion baht ($801 million), an increase of 3.4 billion, or 16.6%, against 2009 profits. “This growth reflects the robustness and agility of the bank’s strategy and the effectiveness of its execution and risk management capabilities.” Total assets and loans in 2010 increased by 14% and 12.6% respectively, with deposits growing 14.2% compared to 2009. SCB reduced its NPLs from 4.41% of total loans in 2009 to 3.25% of total loans in 2010. According to estimates provided by SCB, the bank reported the highest return on equity (16.4%) and the highest return on assets (1.7%) among Thailand’s four leading banks.

Kannikar Chalitaporn, president

www.scb.co.th

Uzbekistan

Credit-Standard Bank

Identified by banking authorities as a systemically-important bank domestically, Credit-Standard saw strong growth in profitability in 2010. Net profit increased by more than 1.6 billion som to 4.5 billion som ($2.7 million). The bank also reported that its corporate customer base grew 23% during the year. During 2010 the bank supported two major projects, including a leasing project in Tashkent and a major housing construction project. In the past 12 months the bank launched a new version of its website designed to make information more easily available to customers as well as providing new online services. It also expanded its range of deposit products.

Ibragimov Alisher Khodjimatovich, acting chairman
www.credit-standard.uz

Vietnam

Asia Commercial Bank

Some of the ratings agencies sound a cautious note with respect to loan growth in the Vietnamese banking sector and the pressure it is putting on banks’ capital. If any bank can withstand these pressures, it is perhaps Asia Commercial Bank. Despite strong loan growth, ACB has what analysts term “adequate” profitability and a relatively low NPL ratio, and “progressive risk management and controls,” helped perhaps by the guidance it receives from Standard Chartered Bank, which is a shareholder. Profit after tax as of December 31, 2010, was 2.3 billion dong ($110 million) on the back of strong growth in net interest income.

Ly Xuan Hai, president and CEO

www.acb.com.vn/en

alt The World Best Banks 2011: Country Winners