26 February 2021, Singapore – Meezan Bank topped the ranking of Strongest Bank by Balance Sheet in Pakistan and the 5th Strongest Islamic Bank in the World in 2020. Meezan Bank and other banks were recognised at The Asian Banker’s Strongest Banks by Balance Sheet Briefing and Recognition Virtual Ceremony 2020.
This is the most comprehensive annual evaluation that captures the quality and sustainability of the balance sheets of banks in the Asia Pacific (APAC), Middle East and Africa regions.
The ranking is based on a detailed and transparent scorecard that evaluates commercial banks and financial holding companies (banks) in six areas of balance sheet financial performance, namely the ability to scale, balance sheet growth, risk profile, profitability, asset quality, and liquidity. For Strongest Banks by Balance Sheet 2020, the financial information in the first half of 2020 (1H 2020) was collated and incorporated into the assessment of how banks performed during the COVID-19 pandemic.
The bank had one of the best asset qualities among its peers in Pakistan while maintaining strong capital and liquidity levels. Its gross non-performing loan (NPL) ratio stood at 2.3%, compared to an industry-wide average of 8.4%. In addition, it registered a higher return on assets (ROA) of 2% from 1.5% over the same period a year earlier, and a lower cost to income ratio of 40% from 47%.
The bank ranked first in Pakistan and took the 36th spot in APAC while Allied Bank, its nearest competitor, was trailing behind taking the 63rd place in the Strongest Bank by Balance Sheet ranking in APAC. The bank achieved a higher score in indicators such as ROA, cost to income ratio and gross NPL ratio than Allied Bank, while its non-interest income to total operating income was lower. Habib Bank and National Bank of Pakistan, the top two largest banks by total assets in the country, recorded a higher gross NPL ratio at 6.8% and 15.5%, respectively. The two banks also underperformed in areas such as capitalisation and profitability.
The following were especially considered in the evaluation of the banks’ balance sheet strength and resilience: how accelerated digitalisation are enhancing bank balance sheet strength, the impact of debt moratoria, rescheduling and financial aid measures introduced by regulators on bank asset quality, how banks are growing alternative sources of income amid the record low interest rate, and the strategic economic relief and regulatory support in response to the crisis and effect on the pace and scale of recovery.
The bank is the 5th strongest Islamic Bank in 2020 out of 100, based on the Strongest Islamic Bank by Balance Sheet ranking in the world. The evaluation in 2020 covers 100 largest Islamic banks from 23 countries. At the aggregate level, total assets of Islamic banks on the list stood at $1.03 trillion, compared to $903.9 billion in the previous year’s evaluation, which was based on data in fiscal year (FY) 2018. Overall, Islamic banks in Saudi Arabia achieved the highest average strength score at 3.74 out of 5, followed by Qatar (3.60), Kuwait (3.30) and Pakistan (3.27).
The growth of Islamic banks accelerated while the profitability declined. The average asset growth of Islamic banks listed accelerated from 8.7% year-on-year (YoY) at the end of 1H FY2019 to 13% YoY at the end of 1H FY2020. However, the overall profitability of Islamic banks weakened amid the pandemic. The average ROA stood at 1.1% in 1H FY2020, lower than 1.5% in 1H FY2019, and the average cost to income ratio was up slightly from 41.3% to 41.5%.
The bank achieved higher profit and maintained healthy asset quality
Pakistani banks enjoyed higher profitability than banks in most APAC markets. The ROA of Meezan Bank increased to 2% in 1H 2020 much higher than the average ROA of the 13 Pakistani banks on the list which stood at 1.2%. Its cost to income ratio improved to 40% in 1H 2020 compared to the industry average ratio of 48.2%. The operating profit of the bank surged 66% in 1H FY2020 duemainly to the higher volume of earning assets portfolio and higher underlying rates.
In addition, Pakistani banks saw some deterioration in gross NPL ratio in 1H 2020, with the average gross NPL ratio increasing to 8.4% at the end of 1H 2020 from 7.5% in 1H 2019. Although the bank also posted an increase in gross NPL ratio, it was able to keep the ratio at a relatively low level of 2.3%. Meanwhile, the bank maintained strong levels of capitalisation and liquidity, with the capital adequacy ratio (CAR) of 20.9% and the average liquid assets to total deposits and borrowings ratios of 62%.
For the evaluation criteria and full ranking list of Strongest Banks – click here
The Asian Banker Strongest Banks by Balance Sheet is an annual assessment of the financial and business performance of the banking industry in the Asia Pacific, Middle East, and Africa regions. The assessment ranks the top performing banks in each country by strength, an evaluation that is based on a belief that a strong bank demonstrates long-term profitability from its core businesses.
The scope and coverage for The Asian Banker Strongest Banks by Balance Sheet come from both the mature markets and the most promising emerging markets in the regions. The focus of the assessment is on commercial banks and financial holding companies with a significant proportion of activity in commercial banking. The assessment does not include central banks, policy banks or finance companies.
The winners are determined using a scorecard approach based on six crucial performance indicators rated on a scale of 0-5: scale, balance sheet growth, risk profile, profitability, asset quality, and liquidity.
The Asian Banker is the region’s most authoritative provider of strategic business intelligence to the financial services community. The Singapore-based company has offices in Singapore, Malaysia, Manila, Hong Kong, Beijing, and Dubai, as well as representatives in London, New York, and San Francisco. It has a business model that revolves around three core business lines: publications, research services and forums. The company’s website is www.theasianbanker.com
Ms. Sue Kim