World’s Safest Banks In Emerging Markets 2021

Global Finance names this year’s safest emerging-market banks.

Covid-19 created enormous challenges for most emerging-markets banks. Due to shifting business models and employee work arrangements, these banks were forced to immediately address significant operational and financial complexities. The sector is slowly recovering, but now must content with continued elevated levels of domestic unemployment, rising inflation, and the threat of a resurgent pandemic.

Global Finance’s rankings of the Safest Emerging Markets Banks list the institutions that held steady through the pandemic, showing a stability that will allow them to emerge stronger. 

This strength is particularly evident in South Korea, where sound bank fundamentals and a comparatively resilient economy during the pandemic contributed to the sector topping our rankings and placing fifth of the top ten, and nine banks overall.  Some institutions have shifted their business models to emphasize lending to the small to midsize enterprise (SME) sector and also are expanding in lower-risk secured lending.

“The largest South Korean banks entered the pandemic as strong, well-capitalized institutions with solid financial profiles,” says Fitch Ratings analyst Jonathan Cornish, managing director and head of Asia Pacific banks for Fitch Ratings. “Korea has been a big beneficiary of strong trade volumes, which has contributed to a sound platform for good bank performance.”

Indeed, Korea’s 2020 GDP fell just 0.9%—compared to 4.5% for advanced economies, according to the IMF’s October 2021 World Economic Outlook. Still, many Korean banks are looking to expand regionally, aiming to derive as much as 20% of earnings from South Asia. “However, these are riskier markets,” notes Cornish. “An increased risk appetite that does not translate into improved earnings and capital could result in downward ratings pressure.” Fitch upgraded KEB Hana Bank (#13), NongHyup Bank (#15) and Woori Bank (#14), while Woori Bank also benefited from an S&P upgrade, to A+. 

State Support and Tech Savy Matter

In Latin America, the five Chilean banks held steady in the ranking. The Chilean government enacted aggressive support programs during the pandemic and benefited from strong export demand in metals. Notably, Chile boasts one of the highest vaccination rates in the world: 89% of the population inoculated versus. under 40% for Latin America. Chile’s banks are also embracing technology; Banco del Estado de Chile recently announced several fintech partnerships in open banking, for example.

“Chilean banks are recovering faster than banks in other jurisdiction, mostly because of the strong and sustainable economic rebound, but also because these banks are among the leaders in Latin America in developing new digital banking channels, and also benefit from the regulatory-friendly environment in Chile that promotes this innovation,” says Alejandro Garcia, managing director for Latin American Banks for Fitch Ratings.

China placed nine institutions in our Safest Emerging Markets Banks ranking. The leaders—three policy banks and four big commercial banks—are all either state-owned or have significant state ownership and support, which should help them in contending with headwinds related to slowing growth, rising levels of problem assets, particularly in the real estate sector, and the fallout from power outages that is depressing output in the manufacturing sector.

Post-pandemic, emerging markets will see a shakeup, with some rising to the top and others falling behind. The banking sector will also feel the impact, with strong players acquiring weaker ones.