Seeking Stability

By Clouse, Thomas; Gregson, Jonathan et al. | Global Finance, May 2012 | Go to article overview

Seeking Stability


Clouse, Thomas, Gregson, Jonathan, Guerrero, Antonio, Platt, Gordon, Global Finance


The global financial system is out of the recovery room but remains in rehabilitation. North American banks are strong and stable for the most part, and banks in Western Europe are taking steps to improve their balance sheets, but questions are arising over the health of China's banking system. Investors sold Chinese bank stocks in March in anticipation of slowing economic growtii and concerns about risk on loans to local governments.

The sovereign debt crisis in Europe has increased the need for banks to deleverage. Investors are rewarding banks that take a prudent approach to provisioning and writing down nonperforming loans (NPLs).

Banks in Central and Eastern Europe are less exposed to the problems facing banks elsewhere in Europe. Economic progress is also continuing across the Nordic region. A number of big US banks reported stellar earnings last year on strong loan growth, fewer NPLs and record deposits. Improving US economics and abundant corporate bond issues are brightening the oudook.

The emerging markets offer some exciting opportunities for bankers, but even here question marks are popping up more frequendy. Can BRIC nations maintain their fast economic growth rates? Is it safe for bankers to venture into new frontier markets where credit cultures do not yet exist?

In our 19th annual survey, Global Finance has identified the best banks in 136 countries, as well as eight regions. In selecting the winners, we relied on input from industry analysts, corporate executives and banking consultants, as well as research by Global Finance's reporters and editors. Our selection criteria included knowledge of local conditions and customer needs, growth in assets, profitability, strategic relationships, experience of staff, innovative products, competitive pricing, level of nonperforming loans and effective use of technology.

The winners are not always the biggest banks but rather the best - those with the qualities that corporations should look for when choosing a bank.These are banks with effective risk management systems, quality service and best practices in corporate governance. - Reporting by Thomas Clouse, Jonathan Gregson, Antonio Guerrero & Gordon Piatt

NORTH AMERICA

North America's banks are well along the road to recovery from the financial crisis, amid signs of improvement in the US and Canadian economies. The Federal Deposit Insurance Corporation says US banks earned $1 19.5 billion in 201 1 - the most in five years. And the number of banks on the FDICs "problem bank" list fell to 813 in the fourth quarter from 844 a year earlier.

However, profits have been concentrated in the biggest banks. Those with assets of more than $10 billion accounted for the majority of earnings growth last year. As the economic oudook began to improve, big banks began to reduce their huge loanloss provisions.

The oudook is perhaps best described as pardy sunny, with worries about potential spillover effects from Europe's debt crisis. Corporations are borrowing once again, but many of them are tapping the bond market and paying down bank loans. Banks, meanwhile, have reduced their bond inventories and are taking fewer market risks. The plumper capital cushions they have installed at the behest of regulators will make the banks safer, but potentially less profitable.

US banks are willing to lend, according to the Federal Reserve's senior loan officer survey. Meanwhile, the leverage ratio of US commercial banks is close to an all-time low, according to Fed statistics.

Canadian banks have long followed the less-risky path now being forced upon their southern neighbors. Scrutinized by watchful regulators, they avoided the worst of the financial crisis and are more attuned to the new business models coming into fashion worldwide. The World Economic Forum named Canada's banks as the world's soundest for four straight years.

The Canadian Bankers Association notes that Canada's banks are well-managed, well-regulated and well-capitalized. …

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