The World's Safest Banks 2019

A number of factors have contributed to improving stability within the global banking sector in recent years. Continued economic expansion in many countries, combined with regulatory reforms that bolstered bank capitalization and funding, has resulted in many banks exhibiting the greater strength and resilience necessary to weather a severe economic downturn. Still, the ongoing US-China trade dispute, Brexit uncertainty and considerable geopolitical risk are eroding business confidence and reducing investment—thereby threatening global growth and bank profitability. After global GDP expansion of 3.6% in 2018, GDP growth has been downgraded to 2.9% for 2019, with a slight increase to 3% for 2020, according to the Organization for Economic Cooperation and Development (OECD).

In response to prospects for slower growth, some central banks have shifted their monetary policy to a more accommodative stance. The US Federal Reserve cut rates twice this year, most recently in September, while the European Central Bank (ECB) hopes to keep rates at current levels into mid-2020. Other central banks may follow the Fed’s easing stance, which makes bank profitability more challenging due to shrinking interest margins. At a time of significant uncertainty and risks to the global economy, the Global Finance annual rankings of the World’s Safest Banks highlight institutions with the greatest stability.

Our methodology applies a clear approach in the compilation of the World’s Safest Bank rankings, utilizing the long-term foreign currency debt ratings from Fitch, Moody’s and Standard & Poor’s. (See Methodology below). Our 2019 edition includes the impact of a number of rating agency upgrades, which resulted in shifts in our rankings. In most cases, the upgrades reflected increases in loss-absorbing capital buffers, or the adoption of stronger resolution plans in the event of bank failure. While the implementation of regulatory requirements has improved bank stability, the degree to which regulatory mandates act as a catalyst for further upgrades in bank ratings may be subsiding.

North American banks have demonstrated solid operating performance on the strength of the US economy and financial markets, but there exist considerable headwinds related to the outlook for a slowing economy—exacerbated by the US-China trade dispute—that will be disruptive and costly. The OECD expects GDP growth in the US to decline to 2.4% in 2019 and to 2% in 2020, down from 2.9% in 2018. Banks in the US and Canada must contend with tighter margins due to persistently low interest rates, while devoting considerable resources to ongoing regulatory requirements as well as technology and development of digital platforms.

The sector has benefitted from generally improving trends in bank asset quality. However, a slowing economy increases the risk of credit deterioration within bank loan portfolios. Additionally, the new Current Expected Credit Loss accounting-methodology standard starts to take effect in stages beginning in December 2019, and may contribute to earnings pressure; as banks will be required to record expected credit losses on loans and other financial instruments up front, instead of as losses are incurred.

Some areas of the regulatory environment have eased somewhat with the softening of elements of the Volcker Rule. Amendments to Dodd-Frank raised the threshold for a classification of “systemically important”—requiring special oversight—from institutions with assets of at least $50 billion to those with at least $250 billion. This reduced the number of banks subject to the Fed’s Comprehensive Capital Analysis and Review exam to 18 for the 2019 review, down from 35 in 2018, and mainly benefits midsized institutions. Also, new trading terms have been proposed under the US-Mexico-Canada Free Trade Agreement, but the North American Free-Trade Agreement remains in place until the new agreement is ratified, possibly in 2020.

In Europe, as we go to press, much of the focus is on Brexit and the possibility of the UK leaving the EU without a withdrawal agreement in place before the October 31, 2019, deadline. European banks are well represented throughout our rankings, occupying the first 11 positions and representing 27 of the Global Top 50 Safest Banks. These banks include a combination of state-sponsored institutions and highly rated commercial banks. OECD estimates of economic growth in the eurozone countries, and also the UK, are approximately 1% for 2019 and 2020, and could worsen in the event of a no-deal Brexit outcome. Against this backdrop, ECB policy remains accommodative; and the bank also initiated the third series of its Targeted Longer-Term Refinancing Operations, designed to support the banking sector by providing lower-cost funding.

Banks in emerging-market countries must contend with the fallout from the protracted US-China trade dispute. Chinese regulators are signaling that aggressive interest rate cuts are not planned in response to slower growth that the OECD expects to fall below 6% in 2020. Rather, a more measured approach to policy easing, combined with fiscal stimulus in the form of infrastructure spending, is expected to offset slower growth. Sensitivity to volatility in commodity prices is an ongoing concern, particularly in the oil markets, after the attack on the Saudi Aramco facility illustrated significant vulnerabilities that can create supply disruptions.

Global Top 50

Not surprisingly, the Global Top 50 Safest Banks are highly rated; and this has improved with a few upgrades since our 2018 publication. BNG Bank rose two places to third as a result of an upgrade by Fitch, and is now one of five banks that hold a triple-A rating from each of the three rating agencies. Two entities, Nederlandse Waterschapsbank and Kommunalbanken, continue to be Aaa and AAA rated by Moody’s and S&P, respectively. However, they don’t carry a Fitch rating.

The scoring threshold for inclusion increased slightly to 19 from 18.5 in 2018, with a maximum possible score of 30. Moreover, some of the scores of these banks are concentrated within various scoring levels. Consequently, a one-notch change in rating can have a large impact on rankings, as was the case with DNB Bank, which rose 17 positions as a result of a January 2019 upgrade by S&P. BNP Paribas is a new entrant to our 2019 Global Top 50 rankings, due to an April 2019 upgrade from S&P in response to an increase in the bank’s loss-absorbing capital buffer. US Bancorp and Bank of Taiwan missed the cut this year as a result of BNP’s upgrade and larger balance sheet; Bank of Taiwan, with a score of 18.5, fell just below the required score of 19 points for inclusion. Of note, Nordea Bank changed its domicile to Finland from Sweden by way of a cross-border merger of Sweden-based Nordea Bank AB with new parent Finland-based Nordea Bank Abp. The bank’s ratings were affirmed, but Nordea’s ranking fell three spots due to the shifting of other banks in the Global Top 50.

Regulatory changes have been a catalyst for bank restructuring, and since our last ranking there have been a number of significant new mandates. Notably, the finalization of Basel III (designed to strengthen capital requirements and reduce bank leverage), the adoption of IFRS 9 (to harmonize definitions and accounting principles around financial instruments) and the implementation of recovery and resolution plans are global in scope.

Banks must address additional mandates related to consumer privacy under Europe’s General Data Protection Regulation (GDPR), and securities-trading transparency and investor protection under the revised EU Markets in Financial Instruments Directive (MiFID II). In November, the European Banking Authority released the results of its latest stress test (which applies to 70% of EU banking sector assets), detailing the capital impact of a set of adverse assumptions. The Bank of England has imposed ring-fence requirements to separate retail and consumer business from wholesale and markets-related banking. UK banks must also issue additional subordinated liabilities up to a minimum buffer requirement to protect senior creditors.

Meanwhile, in the US, elements of Dodd-Frank have eased; this mainly impacts regional and community banks. Going forward, the refinement of capital and liquidity requirements, compliance with stress tests, and ensuring robust recovery and resolution plans will continue to underpin regulatory oversight. Such mandates ultimately contribute to the resilience of the sector.

After the 2008 crisis, central banks injected significant liquidity into the financial system through highly accommodative monetary policy (quantitative easing), hiking the threat of asset bubbles and inflation. This stance has shifted. The US Federal Reserve is now well into a tightening phase; its European counterpart is expected to follow, possibly in mid-2019. While rising rates in some regions could benefit banks’ net interest margins, innovation is needed to maintain profitability. Fintech has brought fresh competition in finance, and banks must develop or acquire robust online platforms to grow their consumer business.

In this era of heightened scrutiny, with the prospect of rising interest rates that may pressure economic growth, the sector faces additional challenges. Achieving earnings growth will be particularly daunting given the considerable costs related to regulatory compliance, new technology investment and maintaining legacy systems. Moreover, robust risk management is critical to manage global risks, ensure data security and prevent cyber threats. Banks must continue to identify cost efficiencies while focusing on revenue initiatives.

We apply a straightforward approach to ranking the World’s Safest Banks, using long-term foreign-currency debt ratings from the three major international rating agencies. (Details p. 19)

Overall, the Global Top 50 banks include institutions that exhibit considerable stability. As a result, scores remain in a narrow range. The score for inclusion among the Global Top 50 was relatively unchanged at 18.5 points (versus 19 in 2017) out of a top score of 30.

As in the past, sovereign-rating changes can have a large impact on movements year-over-year. For example, the Canadian banks rose in our 2018 rankings due to an upgrade by Moody’s in July 2018 following Canada’s adoption of new bank resolution regulations. The upgrades boosted the rankings for Toronto-Dominion (11th), Royal Bank of Canada (12th), The Bank of Nova Scotia (27th), Bank of Montreal (32nd) and Canadian Imperial Bank of Commerce (33rd and a new entrant).

Methodology: Behind the Rankings

Our rankings apply to the world’s largest 500 banks by asset size. We calculate the rankings based on 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 ranking 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. All ratings in the tables were valid as of August 17, 2019.

Asset figures from Fitch, Moody’s, and company reports. Ratings valid as of Aug. 31, 2019.