In The Asian Banker Strongest Banks By Balance Sheet evaluation for 2018, banks in Hong Kong, Singapore and Australia achieved the highest weighted average strength score, except for Brunei, which had only one bank on the list. On the contrary, Bangladesh, India and Pakistan recorded the lowest average strength score. The Hong Kong banks measured well in most indicators. They recorded the highest average strength score in the area of profitability. Except for Brunei, the countries/territories in the Asia Pacific region’s 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.

In general, Asia Pacific 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 was slightly improved. Banks’ balance sheet growth varied across markets. The lower score in balance sheet growth is largely the result of slower growth in markets such as Malaysia, New Zealand, Japan and China. Banks in China saw their weighted average asset growth contract considerably from 15% in 2016 to 7.5% in 2017, mainly due to the regulatory tightening of shadow banking and interbank activities. However, their average loan growth only slowed down slightly. Balance sheet growth accelerated in markets like Hong Kong and Thailand. On average, Hong Kong banks on the list posted a 15.4% growth in net loans in 2017, compared to 3.2% in 2016. The significant improvement can be largely attributed to the increased lending to corporates in mainland China and strong demand for mortgage lending.

Capital positions of Asia Pacific banks broadly improved in 2017. Banks in Indonesia, Hong Kong, Malaysia, Singapore and Thailand enjoyed high capitalisation ratios, which provided sufficient buffers against risks. However, the capitalisation of Vietnamese banks remained weak, partially due to the strong balance sheet growth. Vietnamese banks 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 insufficiently capitalised. Despite 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%. More capital is needed for Indian banks to meet regulatory capital requirements.

The banks’ asset quality remained stable or showed signs of improvement in most Asia Pacific markets, with the exception of countries/territories like India, Singapore and Malaysia. The gross non-performing asset ratio of Indian banks deteriorated because of the stricter norms on bad loans. The average gross non-performing loan (NPL) ratios of banks in New Zealand, Australia, Hong Kong and South Korea remained below 1% in 2017. The asset quality of Philippine banks was broadly stable, backed by prudent lending regulations, although increased exposure to the real estate sector remains a potential risk. In China, the overall asset quality of the banking sector stabilised in line with the moderate but steady growth in the economy. However, banks’ asset quality pressures persist, especially for those regional banks.

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