The 2008-2009 edition of the World Economic Forum’s
Global Competitiveness Report concludes Canada has the
world’s soundest banking system in a changing of the guard which
sees the UK, traditionally found in the upper echelons of the
table, fall below emerging nations such as Senegal and El
Salvador.
The report sought the opinions of more than 12,000 business
leaders across 134 nations before arriving at weighted assessments
of each country’s social and economic health. Rankings for the
‘soundness of banks’ category ranged from 1 (“insolvent and may
require a government bail-out”) to 7 (“generally healthy with sound
balance sheets”).
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Canada topped the list with a score of 6.8, followed by Sweden,
Luxembourg, Australia and Denmark. Notable risers included Namibia,
up from 34th to 17th.
The UK was the biggest casualty, falling from 4th to 44th. The
move was likely precipitated by the collapse of Northern Rock in
August last year; but the sudden drop in the rankings does,
however, call into question the report’s standing as a barometer of
banking stability.
Doubts over Iceland
Further doubts arise in the case of Iceland, which has seen its
three largest banks collapse since the study’s completion (see
News Digest). The nation climbed one place to rank as the 28th
most stable banking system in the 2008-2009 report. Similarly,
Belgium retains its place in the top 10 despite the bail-outs of
both Dexia and Fortis.
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By GlobalDataThe WEF has been more consistently cautious in its analysis of
the US banking system. The country, which has seen 15 bank failures
as well as the fire-sale of Wachovia so far in 2008, ranked 40th on
the latest list, down from 26th in the year previous. Taking the
study as a whole, however, the US maintains its position as the
most competitive economy in the world.
“Despite rising concerns about the soundness of the banking
sector and macroeconomic weaknesses, the country’s many other
strengths continue to make it a very productive environment…
financial markets are rated as highly efficient,” the authors
said.
Financial efficiency is also a key strength for the UK, though
its placing in this segment has fallen from second to fifth in
light of the events of the past 12 months.
China, which continues to lag its global peers, ranks just 108th
on the soundness scale (down from 89th in 2007-2008).
“China presents some serious shortcomings, notably in the
financial sector… in terms of efficiency enhancers,” the report
advises. “Liberalising, opening and deepening financial markets
should remain an absolute priority.”
Despite the success of the likes of Industrial and Commercial
Bank of China, Bank of China and China Construction Bank over the
past few years, the report notes: “China’s key competitive weakness
is related to its financial market.”
For other emerging markets, progress in improving the soundness
of their banking systems remains incremental at best, the report
implies. Russia sits one place higher than China in 107th, India
ranks 51st and Brazil 24th – up from 108th, 46th, 36th,
respectively, in 2007-2008.
Next year’s rankings may well reflect fears that the credit
contagion will spread to developing economies, but it remains to be
seen whether the co-ordinated governmental bail-outs of the US and
European banking markets bring about a return to stability in the
West.
