JUPITER, Florida (June 4, 2012) — The world’s weakest banks are concentrated in Europe and Asia, while the strongest financial institutions are based in Latin America, the Middle East and North America, according to a new study by Weiss Ratings, a leading independent rating agency of U.S. financial institutions.
Weiss Ratings’ senior banking analyst Gene Kirsch commented: “Our analysis underscores just how severe Europe’s financial crisis is despite imposed austerity measures, while financial institutions in emerging markets have largely bypassed the recurring debt crises of recent years. And, with fears over a euro breakup mounting, European banks could easily face a new and more tumultuous round of financial troubles.”
In initiating coverage of 206 of the world’s largest1 financial institutions, Weiss found that 75, or 42 percent, of the weakest banks—those rated D+ or lower—were based in Portugal, Italy, Ireland, Greece, and Spain (often referred to as PIIGS countries), France and Germany. In addition, 50 percent of the 32 Japanese banks evaluated by Weiss merited a rating of D+ or lower. The U.S. is home to 17 of the largest banks and, despite some challenges, 13 are rated “Good” or “Fair.” The few remaining large U.S. banks are considered vulnerable and weak.
Large global banks receiving a Weiss Financial Strength Rating of D+ (Weak) or lower are:
Germany’s Deutsche Bank, the largest bank in the world with total assets of $2.8 trillion as of December 31, 2011, received a Weiss rating of D (Weak) due to its capital position and poor profitability. Its low 1.8 percent tangible common equity ratio, a measure of capital, is just one-fifth the industry average of 8.4 percent. In addition, Deutsche Bank earned a return on assets of only 0.1 percent, a fraction of the industry average of 0.9 percent. Both figures suggest that the bank has a significantly higher probability of future financial difficulties.
The largest U.S.-based global bank considered weak by Weiss is Bank of America (BAC), the tenth largest bank in the world with assets of $2.1 trillion. Bank of America reported return on equity of -1.5 percent for 2011, which is well below the industry average of 10 percent. This reduced profitability due to prior bad loans and restructuring of nonperforming businesses is the primary factor in determining the bank’s D+ rating.
In contrast, Weiss found that the strongest global banks were headquartered in the emerging markets of Latin America and the Middle East and are generally smaller in size. “With a more focused lending and investing strategy, smaller banks in nations undergoing rapid growth and industrialization were able to remain stable and prosper despite the global economic crises that began in 2008,” Kirsch commented.
Large global banks receiving a Weiss Financial Strength Rating of B+ (Good) or better are:
The two highest-rated banks in the world, Qatar National Bank (QNB) and Al Rajhi Bank (ARB), are located in the Middle East. Based on solid capital positions and strong financial results, both banks earned a Weiss Financial Strength Rating of A (Excellent). Qatar National Bank reported 20.9 percent in Tier 1 capital, almost double the average of 11.5 percent. Nonperforming loans represent only 4.6 percent of Qatar’s core capital, an impressive achievement compared to the average of 31.5 percent. The bank also enjoyed a return on assets of 2.3 percent, more than double the average of 0.9 percent.
Similarly, Al Rajhi Bank has strong capital, profitability and liquidity. It has a high risk-based capital ratio of 18.9 percent. Both its return on assets of 3.2 percent and operating income to assets of 3.3 percent are well above average. And, at 9.66, its cash and equivalents as a percent of total liabilities is almost double the average.
Weiss Ratings has added coverage of more than 200 global banks, issuing ratings on the world’s largest bank holding companies. The methodology used to rate global banks is the same quantitative analysis that Weiss applies to domestic institutions, evaluating each of five major components of a bank’s finances—capital, asset quality, earnings, liquidity and stability—to determine an overall Weiss Financial Strength Rating, which ranges from A (Excellent) to E (Very Weak).
The Weiss Financial Strength Ratings on global banks are available at www.weissratings.com/GlobalBankRatingsReport. Weiss Ratings advises bank customers to carefully monitor the health of their financial institutions. For more information on Weiss Ratings, visit www.weissratings.com.
About Weiss Ratings
Weiss Ratings, the nation’s leading independent provider of bank, credit union and insurance company financial strength ratings and sovereign debt ratings, accepts no payments for its ratings from rated institutions. It also distributes independent investment ratings on the shares of thousands of publicly traded companies, mutual funds, closed-end funds and ETFs.
