OCBC Bank has been named the world’s strongest bank by Bloomberg. The assessment is based on factors like the Bank’s Tier 1 capital ratio, loan-to-deposit ratio, ratio of non-performing assets to total assets. The bank’s internal efficiency ratio, which compares costs with revenues, were ranked.
Tier 1 capital is composed of core capital, which consists primarily of common stock and disclosed reserves (or retained earnings). It may also include non-redeemable non-cumulative preferred stock. Capital in this sense is related to, but different from, the accounting concept of shareholders’ equity.
The Tier 1 capital ratio is the ratio of a bank’s core equity capital to its total risk-weighted assets (RWA). Risk-weighted assets are the total of all assets held by the bank weighted by credit risk according to a formula determined by the Regulator (usually the country’s central bank). Most central banks follow the Basel Committee on Banking Supervision (BCBS) guidelines in setting formulae for asset risk weights. Assets like cash and coins usually have zero risk weight, while certain loans have a risk weight at 100% of their face value.