Bloomberg has issued its inaugural list of ‘World’s Strongest Banks’ and Singapore has done well, with OCBC taking the top spot and DBS Group and United Overseas Bank (UOB) coming fifth and sixth respectively.

What ranks a bank the World’s Strongest? Bloomberg compared banks with at least US$100 billion in assets around the world. The system:

weighs and combines five criteria, including Tier 1 capital compared with risk-weighted assets; nonperforming assets compared with total assets; and efficiency, a comparison of costs against revenues.

‘Tier 1 capital’ includes includes a bank’s cash reserves, outstanding common stock and some classes of preferred stock, which all form a kind of ‘shock absorber’ against economic bad times. Strict supervision by the Monetary Authority of Singapore (MAS) helped the banks score well, since its rules requires banks to keep higher amounts of Tier 1 capital than foreign banks. Not only that, but the banks themselves keep reserves even higher than the MAS minimum.

You might say this ranking suits the mood of the current climate. While Singapore banks employ less leverage than others, investors may be drawn to a title like ‘World’s Strongest’ and terms such as ‘strongly capitalized’ and ‘prudent risk management’.

Hugh Young, the Singapore-based managing director of Aberdeen Asset Management Asia Ltd. was a lot more blunt:

“We are big holders of OCBC and UOB and have been for a long time simply because they don’t do the stupid things Western banks do,” says Young, who helps manage $70 billion in Asian equities. “They don’t do things like lending 120 percent of the value of a property to people without a job, and they don’t do stupid things in the derivatives markets and proprietary trading.”

For the record, the other banks in the Top 3 were Sweden’s Svenska Handelsbanken AB (SHBA) and the National Bank of Canada. Canada had five banks in the list’s Top 20 while the US managed only three.

source & articles: Channel NewsAsia, Bloomberg