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Uncertain growth prospects in the developed world are turning more companies and investors toward emerging markets for better gains. How secure are the financial systems in these rapidly developing economies? While some banks in emerging markets may be growing at an unprecedented pace, they could also be exposing clients to more credit risks and higher funding costs.
With this in mind, we look at the 10 safest banks in emerging markets based on rankings by the Global Finance magazine, which publishes an annual list of the top 50. The rankings are based on ratings assigned by the three major credit ratings agencies — Fitch Ratings, Standard & Poor's, and Moody's. To be eligible for the ranking, banks must be among the 500 largest in emerging markets by asset size and have a rating from two of the three major agencies.
So, which are the safest banks in emerging markets? Click ahead to find out.
By Rajeshni Naidu-Ghelani
Posted 22 January 2013
Total assets: $129.8 billion
The Bank of Taiwan is the highest-ranked Taiwanese bank in the top 50 rankings of the safest banks in emerging markets, but is one of six banks from the country to make the list.
The bank was founded in 1946 as the first state-owned bank following the island's restoration to the Republic of China in 1945. In its early years, the Bank of Taiwan carried out many functions of a central bank, like issuing currency, until the Central Bank of China in Taiwan was re-established in 1961. At the end of 2011, the bank's assets totaled $131 billion but have since fallen to under $130 billion as of November 2012. It still makes it the largest bank in Taiwan based on assets.
Bank of Taiwan is rated A by Standard & Poor's and Aa3 by Moody's and has the highest credit rating among all the country's major banks.
Total assets: $40 billion
BancoEstado is the only Latin American bank to make the top 10 rankings, but is one of four Chilean banks to make the top 50 safest list — highlighting the improving creditworthiness of the country's financial institutions.
The bank is the only state-owned commercial bank in Chile. It is also the nation's third-largest bank by loans, and branch network but is first in terms of deposits, according to Fitch. The bank is rated A by Fitch and S&P and Aa3 by Moody's. BancoEstado's strong link with the government and social objective to increase access to banking services and home ownership for low-income residents, gives it a stable outlook amid Chile's developing economy, according to S&P. All ratings agencies have said there's a high likelihood that the Chilean government would step in and provide support to the bank in the event of financial distress.
Riding the wave of economic growth in Chile, which is expected to post a 5.5 percent expansion in 2012 and to grow between 4.25 percent and 5.25 percent this year, BancoEstado has fared well catering to Chile's developing middle class. The bank's fee income grew nearly 13 percent year-on-year in the third quarter of 2012.
Country: Saudi Arabia
Total assets: $51.4 billion
Samba Financial Group is Saudi Arabia's second-largest bank by market value.
Founded in 1980 with a takeover of Citibank branches in Saudi Arabian cities Jeddah and Riyadh, the bank was formerly known as Saudi American Bank until 2003. The bank now has nearly 70 branches, including international locations in London, Qatar and Dubai, along with a presence in Pakistan through a subsidiary. Samba Financial Group is rated A by Fitch and S&P and Aa3 by Moody's. The Saudi government's long track record of supporting the banking sector should bode well for the bank, which is over 50 percent owned by the government through three public agencies, according to Fitch.
In March 2012, the rating agency had said the bank would benefit from the strengthening of its core net special commission income, which is net interest income. But, recent earnings show that Samba Financial saw a nearly 8 percent fall in the fourth-quarter net profit to $231.7 million, compared to the previous year, after income from special commissions declined. Special commissions fell 5.4 percent to $266 million in the fourth quarter from 2011.
Total assets: $82.9 billion
The Qatar National Bank (QNB) is not only the country's safest, it's also the largest, with more than 50 percent of the banking system's assets and deposits.
Founded in 1964, the bank is the country's first Qatari-owned commercial bank. Half the bank is owned by the Qatar Investment Authority, Qatar's sovereign wealth fund, and it makes up nearly a fifth of the country's total stock market capitalization. The bank has stakes in lenders in Indonesia, Jordan, Tunisia and the United Arab Emirates (U.A.E), and is now looking at majority stakes in a Turkish bank and the Egyptian unit of Societe Generale.
QNB is rated A by S&P and Fitch and AA3 by Moody's. S&P cites the bank's strengths to be its dominant commercial position domestically, strong capital and earnings. Recent full-year earnings from QNB lived up to expectations, with net profit up over 11 percent to $2.2 billion in 2012, compared to the previous year. Meanwhile, total assets grew over 21 percent to $100.8 billion in the same period — the highest ever — thanks to a nearly 29 percent increase in loans and advances.
Country: South Korea
Total assets: $157 billion
State-owned Korea Finance Corp. is one of nine South Korean banks to make the top 50 list of the safest banks in emerging markets.
Founded in 2009 as a policy bank, it was created from the divestment of assets from the Korea Development Bank. A policy bank implements government directed spending to support growth in the economy. The bank is rated AA- by Fitch, A by S&P, and Aa3 by Moody's. S&P said its stable rating of the bank reflected their opinion of South Korea's long term outlook, because of the bank's integral link with the government that gives it capital injections, and guarantees.
In October, the state-owned lender bid for its first plane-financing deal and started offering loans to shipbuilders. In 2013, it plans to increase lending to small-sized and mid-size businesses to 62 percent of its total financing in the year to $7.1 billion, up from 53 percent in 2012.
Country: South Korea
Total assets: $161 billion
The Industrial Bank of Korea (IBK) is the third-largest bank by assets at $161 billion in the top 10 rankings of the safest banks in emerging markets.
The state-owned policy bank was founded in 1961 and is currently the fifth-largest bank in South Korea by asset size and accounts for about 4 percent of domestic deposits. IBK has a strong position in the small-sized and mid-sized business (SMEs) lending market, accounting for more than a fifth of the market share.
By the end of the first half of 2012, about 78 percent of IBK's loans were to SMEs and about 20 percent to households. The bank is rated AA- by Fitch, A by S&P, and Aa3 by Moody's.
Total assets: $48.9 billion
The National Bank of Kuwait is the largest bank in oil-rich Kuwait and one of four Middle Eastern banks to make the top 10 list.
Founded in 1952 as the Gulf-state's first local bank, it now operates in 16 countries. It was named the best bank in the Middle East by Global Finance, Euromoney, and The Banker in 2011. The bank holds an A rating from S&P, an AA- rating from Fitch, and an Aa3 rating from Moody's. Earnings released in January showed the bank beat market expectations in the fourth quarter, with net profit of $271 million, more than the anticipated $220 million.
The bank's CEO Ibrahim Dabdoub (pictured), however, did say 2012 was tough year for the sector, describing Kuwait's operating environment as "stagnant." He has warned in previous earnings results that Kuwait's political issues were impacting the lender's profitability and the country's economic growth. Kuwait has suffered from years of political unrest stemming from a power battle between the elected parliament and a government dominated by the ruling family, leading to a row that has held up investment and major economic reforms. The bank expects an improved outlook in 2013 with the government expected to increase infrastructure spending.
Country: United Arab Emirates
Total assets: $69.6 billion
For a second year, the National Bank of Abu Dhabi is the highest-ranked Middle Eastern bank in the top 10 rankings of the safest banks in emerging markets. On the whole, the United Arab Emirates (U.A.E) accounts for six of the 50 safest banks on the list.
With the government owning more than 70 percent of the National Bank of Abu Dhabi, it is the second-largest in the U.A.E by assets and has a presence in 14 countries. In 2010, it was the first bank in the U.A.E. to reach the milestone of $1 billion in net profits. The bank is rated Aa3 by Moody's, A by S&P, and AA- by Fitch. Fitch said the bank's strong franchise, close ties with the government and "sound" profitability and asset quality give it a stable outlook.
In October, the bank announced that it plans to triple its contribution from Islamic banking by introducing sharia-compliant services in Egypt, Oman, and Malaysia. It aims to get up to 10 percent of its operating income from Islamic banking by 2020, up from 3 percent currently, according to Chief Executive Michael Tomlin. In 2010, the bank's $165 million Islamic bond offering in Malaysia was oversubscribed by more than two times, according to Reuters.
Total assets: $310 billion
Coming in at number two, state-owned Agricultural Development Bank of China (ADBC) is also the second-biggest bank in the top 10 by assets.
ADBC, one of China's three policy banks, was founded in 1994 and is responsible for financing China's rural and agricultural development. The bank is rated A by Fitch, AA- by S&P, and Aa3 by Moody's. S&P said its rating for the bank reflects the "almost certain" likelihood that the government would provide support to the bank in the event of financial distress. Fitch, meanwhile, states that its stable outlook for the bank reflects its quasi-sovereign status and the ratings will move in tandem with changes to China's sovereign rating.
ADBC announced earlier in January that profits for 2012 increased over 16 percent from a year earlier to $7.79 billion. Meanwhile, the lender's non-performing loan ratio decreased below the 1 percent mark for the first time, dipping to 0.9 percent at the end of December.
Total assets: $992 billion
Holding on to the number one spot from 2011, China Development Bank (CDB) is considered the safest bank in emerging markets this year. It is also one of six Chinese banks to make the top 50 list.
Founded in 1994 as one of China's three policy banks, CDB is under direct control of the government and is the biggest policy lender in the country. Debts issued by the CDB are guaranteed by China's central government and the bank has been involved in the financing of large infrastructure projects, including the Three Gorges Dam, the Beijing-Shanghai high-speed railway, and the decades-long South-to-North water-diversion project. With total assets of $992 billion, its value is more than triple that of its closest competitor — the Agricultural Development Bank of China at $310 billion — in the top 10 list.
The bank maintains a rating of Aa3 from Moody's, AA- from S&P, and A from Fitch. Active at home and abroad, CDB signed a $20 billion financing agreement with ZTE, the world's No. 5 telecom equipment maker in December, followed by awarding African country Sudan a $1.5 billion loan in January.