South Korean banks stand atop the list of the safest banks in emerging markets.
Many emerging market (EM) economies and their respective banking sectors have regained their footing as the intensity of the pandemic wanes, allowing for a recovery in consumer spending and loan demand. However, global inflation caused by ongoing supply disruptions, war in Ukraine and other factors now presents a new set of challenges.
For emerging market countries dependent on external energy, the surge in oil prices is compounding domestic woes. In addition to rate hikes in their own countries, emerging market economies must contend with the stress of a rising US dollar, following aggressive rate increases by the Federal Reserve, which weighs on global trade by making transactions denominated in dollars more expensive.
Indeed, some countries are expected to experience greater challenges with servicing dollar-denominated debt, which increased as countries engaged in domestic stimulus to fund pandemic-relief programs. As many emerging market economies contract, their respective banking sectors will endure significant stress. Our 2022 ranking of the Safest Emerging Markets Banks provides a valuable benchmark in this economic environment.
Rating-agency downgrades of some Middle Eastern banks and sovereigns were the catalyst for shifts in our EM Safest rankings this year. In January, Fitch downgraded Kuwait’s sovereign rating, sending National Bank of Kuwait, Kuwait Finance House Al Ahli Bank and Ahli United tumbling by as many as 13 positions. In Qatar, the agency cited reduced government-support assumptions as its downgraded Qatar National Bank, Qatar Islamic Bank and Dukhan Bank. Downgrades in these countries pushed five banks off the list entirely.
South Korea dominates the Safest Emerging Market Banks ranking, holding the top three spots and adding Busan Bank and Daegu Bank to the list, at Nos. 47 and 48, respectively. Taiwanese banks similarly put in a strong showing this year, with upgrades by Moody’s and S&P prompting First Commercial Bank and Cathay United to climb in the rankings. Hua Nan, E.SUN, and Chang Hwa also entered our rankings. In addition to navigating considerable stress from the weakening global economy, both Taiwan and South Korea are facing ongoing geopolitical tension. Stability is critical, particularly with the concentration of the semiconductor industry in Taiwan and South Korea, and any escalation in geopolitical tension risks further exacerbating the already fragile global supply chain for these critical components.
The region’s powerhouse, the People’s Republic of China, is grappling with debilitating lockdowns that are stifling the economy, while a new real estate crisis—involving mortgage boycotts from buyers of incomplete housing projects—continues to worsen. While rising credit costs and slower loan growth will weigh on bank earnings across the sector, the eight Chinese banks in our rankings exhibit exceptional rating stability due to high levels of government support and capitalization, allowing these banks to consistently maintain their year-over-year rankings.