Islamic Bank Bangladesh is the Strongest Bank in Bangladesh for 2018
Islamic Bank Bangladesh tops the annual ranking of Strongest Banks by Balance Sheet in Bangladesh in this year’s The Asian Banker Strongest Banks by Balance Sheet evaluation,
- Islamic Bank Bangladesh is the Strongest Bank in Bangladesh for 2018
- Asia Pacific banks have strengthened capital position, profitability and asset quality despite slightly elevated risk profile and slower asset growth
- Regulators have intensified efforts to curb the financial and conduct risks that confront banks in the region
Islami Bank Bangladesh tops the annual ranking of Strongest Banks by Balance Sheet in Bangladesh in this year’s The Asian Banker Strongest Banks by Balance Sheet evaluation, which is the most comprehensive annual evaluation that captures the quality and sustainability of the balance sheets of the banks in the Asia Pacific, Middle East and Africa region.
The ranking is based on a very detailed and transparent scorecard that ranks commercial banks on six areas of balance sheet financial performance; namely the ability to scale, balance sheet growth, risk profile, profitability, asset quality and liquidity. The bank, along with other strongest banks in the region, was recognised at the Asian Banker 500 (AB500) Strongest Banks by Balance Sheet ceremony held in conjunction with the annual SWIFT organised SIBOS convention in Sydney, Australia.
Islami Bank Bangladesh is the Strongest Bank in Bangladesh for 2018
The healthy balance sheet growth and stable asset quality, coupled with its relatively low cost to income ratio, differentiating Islami Bank Bangladesh from its Bangladeshi peers. The bank topped the annual ranking of Strongest Banks by Balance Sheet in Bangladesh for 2018.
The top 20 strongest banks in the Asia Pacific region included ten Hong Kong banks, four Chinese banks, two Singapore banks, and one each from Australia, Brunei, Japan, Malaysia, and New Zealand. Banks in Hong Kong, Singapore and Australia achieved the highest weighted average strength score, at 4.10, 3.51 and 3.34 out of 5, respectively, except for Bru-nei, which has only one bank on the list. On the contrary, Bangladesh, India and Pakistan recorded the lowest aver-age strength score, at 1.81, 2.07 and 2.66, respectively.
The Hong Kong banks continued to measure well in most indicators. On average, they recorded the highest average strength score in the area of profitability among the 19 countries and territories. Except for Brunei, their average strength scores in the areas of risk profile and liquidity are also the highest. The improved net interest margins, stronger loan growth and the reduction in loan impairment charges contributed to their higher profitability in 2017. The weighted average cost to income ratio of Hong Kong banks on the AB500 list was improved from 39.9% in the year before to 38.8%, which was the second lowest in the region. Meanwhile, their asset quality remained healthy, with the weighted average gross non-performing loan(NPL) ratio declining to 0.52% from 0.66% in 2016.
Higher capital buffer and stabilised asset quality
The strength score of the 500 largest banks in the Asia Pacific region averaged 3.15 out of 5 in this year’s The Asian Banker Strongest Banks evaluation, compared to 3.17 in the previous year. In general, banks scored lower in terms of balance sheet growth, loan to deposit ratio and liquidity. However, banks’ capital positions were strengthened in the financial year 2017 and their profitability and asset quality has slightly improved.
Capital positions of Asia Pacific banks has broadly improved. Indonesian banking sector recorded the highest capital adequacy ratio (CAR), supported by strong profitability and decline in credit costs. The weighted average CAR of Indonesian banks on the list went up to 22.4% in 2017 from 20.5% in the previous year. Meanwhile, banks in Hong Kong, Malaysia, Singapore and Thailand enjoyed high capitalisation ratios, which provides sufficient buffers against risks.
However, the capitalisation of Vietnamese banks remained weak, and they need to raise a substantial amount of capital in order to meet Basel II compliance requirements, which will take effect by 2020 in Vietnam. Banks in India were also not sufficiently capitalised. Despite of the significant capital injection from the Indian government into Indian public sector banks, the tier 1 capital ratio of seven public sector banks was still lower than 8%.
Banks’ asset quality remained stable or showed signs of improvement in most Asia Pacific markets, with the exception of countries like India, Singapore and Malaysia. The average gross NPL ratios of banks in New Zealand, Australia, Hong Kong and South Korea remained below 1% in 2017. In China, the overall asset quality of the banking sector has stabilised in line with the moderate but steady growth in the economy. However, banks’ asset quality pressures persists, especially for those regional banks. Indian banks saw their asset quality weaken the most, due to the revised framework that tightened norms for the resolution of stressed assets.
The big clean-up
In Australia, the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry has uncovered a wide range of issues of poor conduct by the nation’s banks and other financial services firms. These firms suffer reputational damage, and their businesses and operating performance will be affected. They need to pay the costs stemming from the Royal Commission, and also face increased costs to deal with tougher regulation and scrutiny in the future.
The Reserve Bank of India (RBI) has continued to take measures to address the serious bad loan problems in India. In February 2018, the RBI tightened norms for the resolution of stressed assets by setting strict timelines for banks to take action against defaulters, which has exerted a significant impact on banks’ profitability. However, the acceleration in the resolution of stress assets will benefit the Indian banking system in the long run.
Meanwhile, the Asia Pacific banking sector is still exposed to high levels of private sector leverage, although the steps taken to rein in excess debt growth has led to the moderation of debt accumulation in some markets. Although the Asia Pacific banking sector as a whole has become more robust in the past few years, there remains concerns over persistent financial risks and vulnerabilities. The regulators have moved aggressively to control the risks and strengthen the banking systems, and this will continue.