Singapore’s Banks Named Among The World’s Safest

thumbs up Savers and investors in Singapore might be happy to know that Singapore’s local banks, DBS Group Holdings (SGX: D05), Oversea-Chinese Banking Corporation (SGX: O39), and United Overseas Bank (SGX: U11) have all been given top rankings in the World’s 50 Safest Banks 2013 list compiled by financial publication Global Finance.

The banks occupied the 12th, 13th and 14th spot, respectively, this year, climbing up one rung each from their respective positions in the 2012 list.

According to Global Finance, their annual ranking of the world’s safest banks “has been a recognized and trusted standard of creditworthiness for the entire financial world for more than 20 years.”

The list was compiled through an evaluation of each bank’s long-term credit ratings – supplied by ratings agencies Moody’s, Standard & Poor’s, and Fitch – as well as the banks’ total assets around the world.

The financial publication goes on to state their opinion that “[l]ong-term ratings are still the most valuable tool for assessing a bank’s reliability, especially when used in a comparative way.”

So while these rankings reflect very well on DBS, UOB and OCBC, investors should also note that such rankings should be taken with a slight pinch of salt.

Here’s why. In 2005 and 2006, the top five safest-banks according to Global Finance, in no order of rank, were:

Bank Country
Groupe Caisse des Depots France
Bank Nederlandse Gemeenten Netherlands
Rabobank Group Netherlands
KfW Group Germany
Landwirtschaftliche Rentenbank Germany

Source: Global Financial

This is how these banks fared during the Great Financial Crisis of 2007/2009:

Profit (in Euros, millions) 2007 2008 2009 2010 2011 2012
Groupe Caisse des Depots 5232 -2954 3986 3696 347 -738
Bank Nederlandse Gemeenten 195 158 278 257 256 332
Rabobank Group 2599 2099 2682 2549 2017
KfW Group -6168 -2743 1127 2631 2068 2384
Landwirtschaftliche Rentenbank 51 463 -77 152 -69 244

Source: S&P Capital IQ

From the table above, we can see how some of the top-ranked banks like KfW Group and Groupe Caisse des Depots reported substantial losses in the billions during the crisis. So, the methodology used by Global Finance to measure the credit-worthiness of a bank is certainly not a fool-proof substitute for determining the quality of its profit-generating operations.

That’s a good reminder of why investors should never take any ranking-exercises done on their companies at face value, or worse, forego their own study on the investing merits of a company just because someone else has given their own stamp of approval.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chong Ser Jing doesn’t own shares in any companies mentioned.