Source: Asian Banker Research
What is the Bank Watch List?
It identifies and considers the impact of specific evaluation parameters on balance sheet strengths, should macro-economic and business conditions change.
By identifying the parameters and institutions that are most likely to be impacted by such changes, we aim to provide a holistic 360 degree view of the ranking without materially changing the composition of the scorecard. The identification and setting of the parameters are based on The Asian Banker research team’s analysis of past performance as well as outlook of the banking sector in the region going forward.
Who are in the Bank Watch List?
Weakening asset quality marks one of the most serious challenges for the Asia Pacific banking sector. Compared to their peers in other countries, banks in Bangladesh, India, and Pakistan recorded much higher gross NPL ratios and relatively low loan loss reserves to gross NPLs ratios. When measured on an asset-weighted basis, the average gross NPL ratio of banks in Bangladesh, India and Pakistan reached 11.5%, 7.5% and 10.8% at the end of FY 2015, respectively. Meanwhile, their average provision coverage ratios were below 100%.
The deterioration in asset quality brings bank profitability and capitalisation under pressure. Banks should take measures to address the substantial asset quality issue in order to mitigate the negative impact on their balance sheet strength.
What does it mean to be in the Bank Watch List?
In this year’s ranking, we have identified gross nonperforming loan (NPL) ratio (above 10%) and loan loss reserves to gross NPLs ratio (below 100%) as parameters that will impact financial strength due to fluctuations in macroeconomic and business conditions. The “Bank Watch List” is a tool to monitor and review parameters in order to give a holistic view of financial strength and the institutions being evaluated. It is a powerful tool for the industry to benchmark and review financial strength and is continuously enhanced.