For the second year running, we see smaller and relatively new banks making it to the top of the ranking.30 of the top 50 strongest bank balance sheets belong to these small banks, which rank outside the Top 100 in terms of the size of their balance sheets. The assets of these 30 banks range from $4 billion (434th in the AB 500 2013 ranking) to $57 billion (102nd in the AB 500 2013 ranking).

Compared to other banks in the Top 50, these banks generated much higher growth in loans and deposits, and at least on their balance sheets reflected better profitability, risk profile, asset quality and liquidity than other banks.

With the exception of more established banks such Wing Lung Bank, Bank Rakyat Indonesia and Metropolitan Bank and Trust Company, the other 27 banks are all smallish new Chinese banks, seven of which are in the Top 20 strongest bank balance sheet ranking. These banks have grown mainly in a period of benign credit expansion and excess liquidity fuelled by the state’s growth-focused policies in the last decade or so.

However, the real test of financial strength is when the business and credit cycles turn and become less benign and asset quality and liquidity positions are stressed. With a marked slowdown in the Chinese economy and signs of stress showing, we anticipate that the performance of these banks in the key parameters will start to show real vulnerabilities.

In this year’s ranking, we have identified net loan growth (CAGR of more than 30%) and NPL (less than 1%) as parameters that will impact financial strength due to fluctuations in macroeconomic and business conditions such as a downturn in credit cycle and asset quality in the region. Banks that have grown net loan relatively quickly and yet been able to maintain
NPL at very low levels on the balance sheet are generally in great shape. However, such performances also show up potential susceptibility and vulnerabilities to a credit cycle downturn.

The “Bank Watch List” does not reflect the financial performance or management of these institutions. It is a tool to monitor and review parameters in order to give a holistic view of financial strengths and the institutions being evaluated. This is the first iteration of what we think will be a powerful tool for the industry to benchmark and review financial strength and which will be continuously enhanced.