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The Global Finance magazine has published its first-ever ranking of the Safest Banks in Emerging Markets. While the banking industry in the developed world is struggling to gain some credibility, investors are increasingly focusing their attention on emerging market banks which are much more risk-averse and have better potential for growth. In fact, many developed banks such as HSBC plc (HBC), Bank of Nova Scotia (BNS), etc. are expanding their operations in emerging countries to earn higher profits.

From the Global Finance report:

We evaluate the ratings and total assets of the main players in developing economies to create the rankings—providing an overview of the key banks in each region and which financial institutions offer the greatest security. Winners were selected through an evaluation of long-term credit ratings—from Moody’s, Standard & Poor’s and Fitch Ratings—and total assets of the 500 largest banks in emerging markets.

The rankings clearly show the ever-growing dominance of China’s banks both within Asia and throughout the emerging markets. Chilean and South Korean banks also feature prominently in the rankings, as do those of Kuwait, Saudi Arabia and the UAE.

The Safest Emerging Market Banks 2011:

S.No. Bank Name (Country)
1 China Development Bank (China)
2 Agricultural Development Bank of China (China)
3 National Bank of Abu Dhabi (UAE)
4 Banco Santander-Chile (Chile)
5 National Bank of Kuwait (Kuwait)
6 Qatar National Bank (Qatar)
7 Samba Financial Group (Saudi Arabia)
8 Bank of Taiwan (Taiwan)
9 Banco del Estado de Chile (Chile)
10 National Commercial Bank (Saudi Arabia)
11 Al Rajhi Bank (Saudi Arabia)
12 Riyad Bank (Saudi Arabia)
13 Banco de Chile (Chile)
14 Korea Finance Corporation (South Korea)
15 Industrial Bank of Korea (South Korea)
16 Abu Dhabi Commercial Bank (UAE)
17 Kuwait Finance House (Kuwait)
18 Komercni banka (Czech Republic)
19 SABB (Saudi Arabia)
20 Banque Saudi Fransi (Saudi Arabia)
21 Union National Bank (UAE)
22 Industrial & Commercial Bank of China (China)
23 KB Kookmin Bank (South Korea)
24 National Agricultural Cooperative Federation (South Korea)
25 Ceska sporitelna (Czech Republic)
26 Arab National Bank (Saudi Arabi)
27 Agricultural Bank of China (China)
28 Land Bank of Taiwan (Taiwan)
29 First Gulf Bank (UAE)
30 Abu Dhabi Islamic Bank (UAE)
31 Commercial Bank of Kuwait (Kuwait)
32 China Construction Bank Corporation (China)
33 Bank of China (China)
34 Shinhan Bank (South Korea)
35 Mega International Commercial Bank (Taiwan)
36 Commercial Bank of Qatar (Qatar)
37 Woori Bank (South Korea)
38 Hana Bank (South Korea)
39 Absa Bank (South Africa)
40 Emirates NBD (UAE)
41 Chinatrust Commercial Bank (Taiwan)
42 PKO Bank Polski (Poland)
43 Banco de Credito e Inversiones (Chile)
44 ING Bank Slaski (Poland)
45 Saudi Hollandi Bank (Saudi Arabia)
46 Doha Bank Qatar (Qatar)
47 Bank Pekao (Poland)
48 BankMuscat (Oman)
49 Saudi Investment Bank (Saudi Arabia)
50 Cathay United Bank (Taiwan)

Banco de Chile (BCH) and Banco Santander-Chile (SAN) currently have dividend yields of more than 4%. In spite of turmoil in global equity markets since the Global Financial Crisis (GFC) both the banks have performed very well. An investment of $10K five years ago in each bank would have grown to over $28K and $19K respectively according to S&P data.

Though many South Korean banks are present in this list, they are average to poor performers and hence they can be avoided. It is interesting to note that none of the banks from India, Brazil and Russia made it to this ranking.

In August 2010, I mentioned Czech-based Komercni Banka (OTC:KMBNY) in an article on foreign bank stocks trading on the OTC market.

Disclosure: Long BCH

Source: The 50 Safest Emerging Market Banks In 2011