Balance sheets and financial results-based evaluations are by nature and definition backwardlooking. To overcome this, we introduced a forwardlooking element called the “Bank Watch List” into the strongest bank evaluation.
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.
|Strength Rank 2020||AB 500 Rank 2020||Commercial Bank||Country||Gross NPL Ratio (%)||Loan Loss Reserves to Gross NPLs (%)|
|412||170||Central Bank of India||India||17.4||68.2|
|132||304||National Bank of Pakistan||Pakistan||15.5||94.9|
|330||66||Union Bank of India||India||14.7||75.1|
|487||349||Punjab & Sind Bank||India||14.1||61.3|
|340||101||Bank of India||India||13.8||73.12*|
|233||434||Bank of Punjab||Pakistan||13.8||81.8|
|306||55||Punjab National Bank||India||13.7||67.4|
|392||189||Indian Overseas Bank||India||13.0||68.4|
|83||486||Standard Chartered Bank (Pakistan)||Pakistan||10.2||86.6|
* FY2019 data.
Source: Asian Banker Research, S&P Global Market Intelligence
What does it mean to be in the Bank Watch List?
In this year’s ranking, we have identified gross non-performing loan (NPL) ratio (above 10%) and loan loss reserves to gross NPLs ratio (below 100%) as key parameters that will impact financial strength. The “Bank Watch List” is a tool to monitor and review the parameters to give a holistic view of the financial strengths of the institutions under evaluation. This is the first iteration of what we think will be a powerful tool for the industry to benchmark financial strength and will be continuously enhanced.
Who are in the Bank Watch List?
Asia Pacific banking sector recorded higher average gross NPL ratio in this year’s evaluation amid the COVID-19 pandemic, although most banks boosted loan loss reserves in response to expected losses from the resulting economic slowdown. For instance, the average gross NPL ratio of Indonesian banks on the list was up from 3% in 1H FY2019 to 3.8% in 1H FY2020, and Pakistani banks posted an increase in average gross NPL ratio from 7.5% to 8.4%.
This year’s Bank Watch List includes nine Indian banks, four Pakistani banks, two Bangladeshi banks and one Japanese bank. There is a drop in the number of Indian banks on the list, due to the mergers among public sector banks in the country and the improvements in their asset quality. The weighted average gross NPL ratio of Indian banks fell to 7.4% at the end of September 2020 from 8.5% a year ago, largely due to moratorium offered by the Reserve Bank of India, recoveries and higher write-offs. Nevertheless, India is expected to be one of the countries that will see asset quality of banks deteriorate the most in the near term.