Global finance names this year’s 50 safest commercial banks.
Commercial banks have been focused for years on transforming their business models to take advantage of digital technology, but the Covid-19 pandemic has accelerated this process. Leaders recognize the need for greater operational efficiency as customer expectations grow beyond mobile apps and online payment capabilities. As their customers isolate themselves and they, in many cases, transition their employees to working from home, they must embrace technological advances to better target customers and markets.
The pandemic and the resulting pressures on the sector have led to significant changes in this year’s ranking of the safest commercial banks. Four Australian banks: ANZ Banking Group, Commonwealth Bank of Australia, National Australia Bank and Westpac suffered downgrades to A+ from AA- from Fitch Ratings due to concerns over bank profitability and asset quality.
Many institutions that have earned a place in Global Finance’s ranking of the safest commercial banks have strong capital ratios, and a strong funding and liquidity profile will help them withstand potentially sustained declines in profitability. All are feeling the pain of the economic contraction precipitated by the pandemic; however, it remains to be seen which ones will emerge stronger. As revenue growth proves elusive, commercial banks are in tight competition to differentiate themselves and gain operational efficiencies. The pace of technology spending continues to accelerate.
A new era
Recent years have seen a marked increase in new rules for bankers regarding money laundering and other ethical and legal issues. This year, Swedbank fell sharply, to 34th in the rankings, as the discovery of shortcomings in its compliance with AML laws prompted the three agencies to downgrade it. HSBC France and National Bank of Kuwait also fell following Standard & Poor’s downgrades.
In a new era of banking, consumers and business customers are benefiting from mobile banking apps and lending platforms that give them faster and easier access to credit. As the largest and most diverse banks continue to refine their current offerings, they are rushing to develop additional capabilities that better use data analytics.
Artificial intelligence (AI) is essential to the more complex types of data analysis demanded by banks and is central to the technological transformation of the sector. AI enables commercial banks to effectively explore data for new product development, customer acquisition and retention, risk management, fraud protection, cybersecurity and compliance and corruption detection. fight against money laundering (AML). For example, the top-ranked commercial bank this year, Royal Bank of Canada, whose Borealis AI research division has rolled out an AI-powered electronic trading platform to its clients using an algorithm that promises to improve the execution of equity transactions.
In a positive development for payments, the European Commission (EC) adopted a Retail Payments Strategy in September, which the EC says aims to reduce market fragmentation, “by creating the conditions for the development of payments snapshots and EU-wide payment solutions”. which are profitable and accessible to individuals and businesses across Europe. With change, new entities rise to the ranks of the safest. Natixis and Crédit Industriel et Commercial are new entrants this year.
The commercial banking sector is under pressure on profitability, squeezed margins and rising credit costs as its loan portfolio deteriorates in vulnerable sectors. New exposures will require an initial reserve for loan loss expense, as indicated by the Financial Accounting Standards Board’s current expected credit loss model and International Financial Reporting Standards IFRS 9 accounting treatment, rather than an estimate of the loss incurred at the time a loan originates.
Commercial banks that are majority state-owned or that receive sponsorship from their governments or regional bodies are excluded from the Global Finance ranking. Institutions included here can operate in the same markets as state-sponsored competitors, but do not receive government support.