Friday, 07 May 2021

Asia Pacific banks improved average CAR to 15.9% in 2020

By Mobasher Kazmi

Bank of China (Hong Kong), the strongest bank by balance sheet in Asia Pacific in 2020, has the highest capital adequacy ratio (CAR) among banks with total assets of over $100 billion in Asia Pacific at the end of 2020. The bank is well capitalised, despite the decline in its CAR from 22.9% in 2019 to 22.1% in 2020.

Most banking sectors in Asia Pacific maintained adequate capital to withstand adverse shocks. On an asset-weighted basis, the average capital adequacy ratio (CAR) of Asia Pacific banks that have announced full year results in 2020 increased from 15.73% in 2019 to 15.91% in 2020.

Bank of China (Hong Kong), the strongest bank by balance sheet in Asia Pacific in 2020, had the highest CAR among banks with total assets of over $100 billion in Asia Pacific at the end of 2020. The bank is well capitalised despite the decline in its CAR from 22.9% in 2019 to 22.1% in 2020.

The top 10 best capitalised banks comprise four Hong Kong banks, two Indonesian banks, two Thai banks, and one each from Japan and Australia. Hong Kong-based Bank of East Asia placed second and its CAR rose from 20.4% in 2019 to 21.9% in 2020. The capitalisation of Hong Kong banking sector remains robust, although the average CAR of the banks fell from 20.77% in 2019 to 20.33% in 2020.

Meanwhile, banks in markets such as Indonesia, Pakistan, Thailand, and Malaysia also maintained stronger capital positions than banks in other markets. Bank Rakyat Indonesia and Bank Mandiri, the top two largest banks by total assets in Indonesia, ranked fourth and sixth, respectively. Some smaller Indonesian banks posted much higher CAR.

Of the 20 banking sectors analysed, 14 reported a positive change in the average CAR with Pakistani banks registering the largest increase. In addition, the slight increase in the average CAR of Asia Pacific banks was also largely driven by the improvement in the ratio reported by banks in markets such as Australia, South Korea, Taiwan, and India.

However, Vietnamese banks face the challenge of maintaining sufficient capital levels. The average CAR of banks in Vietnam stood at 11.09% in 2020. In October 2020, the Vietnamese government allowed state-owned banks to pay dividends in stocks which enabled the banks to use their profits to increase capital. The average CAR of Agribank, BIDV, Vietinbank and Vietcombank was only 9.4% in the first half of 2020. Techcombank recorded the highest CAR in the country at 16.1% in 2020.



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