Global Finance announces this year’s Global Top 50 Safest Banks.
Many of the world’s banking systems and their respective financial institutions have demonstrated tremendous resiliency in the face of the pandemic, the damaging financial impact of which will continue to put considerable stress on bank asset quality and profitability going forward.
The sector’s recovery involves overcoming many economic headwinds, particularly with respect to the enormous disruption in global trade, supply chain bottlenecks and labor shortages and the decline in manufacturing stemming from scarcity of commodities and components. These factors have contributed to persistent inflationary pressure that will be addressed by central bank rate hikes and the tapering of bond purchase programs across the world. Moreover, the governmental support programs that stabilized many global economies have ended or are winding down for most countries.
To combat the impact to their franchises, many institutions have responded aggressively with the refinement of bank business models. The development of digital platforms has allowed the sector to offer more innovative products to reach underbanked segments of the population in many developed and emerging market banking systems at a critical time.
Collaboration with fintech players is accelerating as banks move to enhance the customer experience, utilizing cutting-edge technologies such as artificial intelligence and machine learning that harness large amounts of data to target customers with new products and to hasten underwriting decisions with digital solutions. Competition is fierce; and banking customers are also more empowered, as open banking capabilities improve, allowing for a secure mechanism for consumers to share their financial information with other financial institutions to obtain better banking products and services.
Considering these difficult operating conditions, Global Finance magazine’s 2021 edition of the World’s Safest Banks outlines, within many jurisdictions, the winners that have exhibited exceptional stability in order to maintain their rankings and inclusion in this year’s award. Global banks are entering a new phase of challenges, and our rankings are more valuable than ever.
This consistent performance is the result of several factors; and understandably, banks that exhibited sound capitalization and stable funding profiles before the pandemic fared well. Financial conditions in the home country play a role too. However, the response to the pandemic for many institutions is also viewed as a critical factor as banks quickly shifted business models and employee work arrangements to innovate, create efficiencies, empower employees and mitigate losses.
The Sovereign Effect
In some cases, rating stability is directly related to operating in strong, triple-A rated countries, and to high levels of state ownership and governmental support mechanisms. However, other important dynamics are evident that reflect the comparative strength of the top institutions in our rankings, notably the Nordic banks.
“Not only do Nordic banks operate in very highly rated jurisdictions, but they also enjoy a strong market share in their respective countries; and this creates product-pricing power that the Nordic banks are very selective and strategic with,” says Olivia Perney, European banking analyst at Fitch. “Also, Nordic countries are more advanced with digitalization and acceptance of technology compared to other European countries, which creates greater banking efficiencies.”
Canadian banks are well represented among the safest—an example of a banking system concentrated among a few large institutions. This inherent stability is a factor in their consistent inclusion in our rankings, but their dominance can present challenges.
“With their already dominant franchise and diverse business models, it can be challenging to grow in Canada, therefore Canadian banks will need to look for other avenues of growth,” says Christopher Wolfe, head of North American bank ratings for Fitch. “At the same time, Canadian banks will need to contend with more competition coming from the growing fintech sector, and potentially from broader initiatives such as open banking.”
As a result, these banks are increasingly relying on their global footprint; and many have a sizable international presence, particularly in the United States. Canadian banks are offering retail and corporate banking, capital markets and wealth management services in the US through City National Bank (for Royal Bank of Canada), BMO Harris Bank (Bank of Montreal), and TD Bank (Toronto-Dominion). Bank of Nova Scotia is the most international of the Canadian banks, committed to significant banking operations in the Latin American countries of Chile, Colombia, Mexico and Peru. RBC and ScotiaBank are also highly active in the Caribbean.
The Global Top 50
As is the case each year, our rankings illustrate the shifting fortunes of these institutions. While the top 10 banks in our Global Top 50 Safest Banks remain unchanged, the noted growth challenges in Canada caused Fitch to downgrade Canada’s operating environment. This, in turn, prompted the downgrade of Royal Bank of Canada (RBC) to AA- from AA in July 2021. Consequently, RBC fell nine spots to No. 20 in our rankings. Toronto-Dominion fell seven spots to No. 19, as Moody’s, citing a revision in their bank resolution methodology, downgraded the bank to Aa2 from Aa1. Consequently, Singapore-based banks DBS Bank and Oversea-Chinese Banking Corporation rose to the No. 11 and No. 12 positions, respectively. Bank of Taiwan was upgraded by S&P to AA- from A+ following the agency’s upgrade of the sovereign and is a new entrant in this year’s rankings at No. 43.
Methodology: Behind the Rankings
Our rankings apply to the world’s largest 500 banks by asset size and are calculated 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 31, 2021.