Canadian banks among strongest

Canadian banks among strongest

TORONTO â€" Banks including Citigroup in the United States and BNP Paribas France are racing to shed assets and raise money ahead of new global capital rules that start taking effect in 2015. For Canadian lenders, these moves have created the opportunity to go on a shopping spree.

Canada’s six largest banks have spent $ 37.8 billion since 2008 on about 100 acquisitions at home and abroad, according to Bloomberg Markets.

“We and our Canadian competitors are only able to do that because we have some flexibility as a result of our strength,” said Gerald McCaughey, chief executive officer of Canadian Imperial Bank of Commerce. The bank bought JPMorgan Chase & Co.’s minority stake in asset management firm American Century Investments last year.

“Over the longer term, this should actually help to maintain the strength of the Canadian banking system and its competitiveness,” McCaughey said.

CIBC was No. 3 in Bloomberg Markets’ second annual ranking of the world’s strongest banks, followed by three of its Canadian rivals: Toronto-Dominion Bank (No. 4), National Bank of Canada (No. 5) and Royal Bank of Canada (No. 6), the country’s largest lender. Bank of Nova Scotia ranked 18th, and Bank of Montreal was 22nd.

Singapore’s Oversea-Chinese Banking Corp. retained the title of the world’s strongest bank for the second year, followed by BOC Hong Kong Holdings. Two other Singaporean lenders, United Overseas Bank and DBS Group Holdings, ranked seventh and eighth, respectively.

“Singapore’s economy has performed quite stably and quite well, and for the Singaporean banks, we have real economic activities to finance,” said Samuel Tsien, CEO of Oversea-Chinese Banking. He credits the bank’s strength partly to its risk management practices.

No other country dominated the list as did Canada: The nation of 34.7 million people has only eight publicly traded banks, two of which are regional lenders.

Only three U.S. banks â€" JPMorgan Chase (No. 13), PNC Financial Services Group (No. 17) and BB&T Corp. (No. 20) â€" made the top 20. Four European banks were included: two from Sweden and one each from Britain and Switzerland.

For the ranking, only banks with at least $ 100 billion in assets were considered, and five criteria were weighed and combined. For example, Tier 1 capital was compared with risk-weighted assets, and nonperforming assets with total assets.

Tier 1 capital includes a bank’s cash reserves, outstanding common stock and some classes of preferred stock, all of which combine to act as a buffer against losses.

Banks that posted an annual loss for last year or that failed government stress tests were ineligible.

Canadian banks cite their strong capital levels, the country’s conservative lending culture and strict regulatory oversight under a single supervisor as reasons for their showing. The supervisor requires Canadian banks to hold a higher level of capital than do international standards.

Major banks worldwide follow the rules of the Basel Committee on Banking Supervision, an arm of the Bank for International Settlements, based in Basel, Switzerland, that draws banking regulators from 27 nations to set standards for lenders. The committee issued its first internationally accepted capital guidelines in 1988.

Those rules, known as Basel I, focused on credit risk: the possibility that borrowers might not pay back their bank loans. The committee required banks to hold total capital, at least half of it in Tier 1 capital, equal to at least 8 percent of their risk-weighted assets.

Canada’s regulator, the Office of the Superintendent of Financial Institutions Canada, goes beyond those levels in its requirements, a stance that has shielded lenders from some of the financial follies that undermined other global banks, especially in 2008.

As far back as January 1999, OSFI sent a letter to Canadian banks telling them to set aside at least 10 percent of total capital as a cushion for losses.

“I do not think it was popular at the time,” says Julie Dickson, OSFI’s superintendent. “That’s where having a supervisor with a pretty clear mandate allows you to take those unpopular decisions.”

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