Global Finance Magazine's 16th annual ranking of the World's Safest Banks illustrates how sovereign rating upgrades impact the perceived strength of a country's financial institutions.
Rating upgrades are again driving changes in Global Finance’s ranking of the World’s 50 Safest Banks. Three new banks entered the ranking this year following rating upgrades, and several of those that were included in last year’s list have improved their position, also as a result of upgrades.
These movements continue a trend that began last year: The overall standard for inclusion in the Top 50 is getting tougher, and the ranking as a whole is being shaped not by banks’ ability to avoid downgrades—as was the case for several years after the global financial crisis—but by their ability to earn upgrades.
Two Swedish banks, Swedbank and SEB, enter the 2016 Safest 50, at 30th and 44th positions, respectively. U.S. Bancorp reenters the rankings at 41st.
Pushed out of the ranking are US bank AgFirst, Lichtenstein’s LGT Bank and Chile’s Banco del Estado, all of which have the same ratings as last year but no longer have sufficient asset size to be included. When banks have the same rating score, they are ranked in order of asset size, reflecting the strong positive correlation between high ratings and large asset size.
Last year, all banks with two AA- ratings and one of A+ (or an equivalent combination) earned a spot on the list. This year, those scores were not sufficient to guarantee inclusion, and six banks with two AA- and one A+ (or equivalent) fell short because of their smaller asset size. In addition to the three banks already mentioned that fell out of the ranking, the six included Münchener, Hypothekenbank, BBBank and TeamBank, all from Germany.
The top end of the ranking continues to be dominated by European banks that are either state-owned or enjoy some form of sponsorship from their government or regional authorities. The first nine banks in the ranking are the same as last year, although France’s Caisse des Dépôts et Consignations (CDC) and Luxembourg’s Banque et Caisse d’Epargne swapped places (with CDC now ranked ninth following a downgrade from Moody’s). Dutch lenders Bank Nederlandse Gemeenten and Nederlandse Waterschapsbank were both upgraded by S&P and now fall only one point short of the maximum score of 30.
Four banks hold three AAA ratings: KfW, Zürcher Kantonalbank, Landwirtschaftliche Rentenbank and L-Bank, with KfW again heading the ranking based on its asset size. The safest private-sector bank is TD Bank in 10th place, the same as last year. Germany’s DZ Bank and Deutsche Apotheker und Ärztebank both improved their positions following upgrades from Moody’s, rising ten places to 11th and four places to 19th. Korean banks also improved their position following upgrades from both Fitch and S&P.
The Safest Global 50 comprises 23 European banks, six from Canada, and four from Australia. China, Singapore, South Korea and the United States contribute three each. Hong Kong, New Zealand, Kuwait, Qatar and the UAE contribute one each. No Japanese bank scores highly enough to be included in the Safest 50 Global banks.
Many household names do not come close to scoring highly enough for inclusion in the Global Safest 50. The rating agencies are demonstrating that they are more comfortable with—and are willing to award higher ratings to—banks that are rooted in stable economies with developed financial markets, which have diversified businesses, both geographically and in terms of product offerings, but which are not trying to be dominant players in every market and in every area of banking.
There is significant change in the regional lists for Latin America and the Middle East. No Brazilian banks now feature in the Latin American list following rating downgrades earlier this year, and no Saudi banks feature in the Middle East list. Most Russian banks fail to score highly enough to be included in the rankings of Central and Eastern European and former Soviet banks.
To be eligible for inclusion in the Safest 50 Global Banks, banks must fall within the largest 1,000 banks in the world, ranked by assets, and they must have ratings from at least two of the three major credit-rating agencies, Fitch, Moody’s and S&P. Rating scores are based on long-term foreign currency ratings with a score of 10 being awarded for a AAA rating, nine for AA+, and so on. When a bank has only two ratings, an implied score for the third rating is calculated by taking the average score for the two ratings and deducting one point.
BEHIND THE RANKINGS
Our ratings apply to the world’s largest 500 banks by asset size. We calculate the rankings based on the long-term foreign currency ratings issued by Fitch Ratings, Standard & Poor’s and Moody’s Investors Service. Where possible, ratings on holding companies rather than operating companies were used, and banks that are wholly owned by other banks were omitted.
Within each rank set, banks are organized according to asset size based on data for the most recent annual reporting period provided by Fitch Solutions and Moody’s. Ratings are reproduced with permission from the three rating agencies, with all rights reserved. A rating is not a recommendation to purchase, sell or hold a security, and it does not comment on market price or suitability for a particular investor.