By Dr. Jean TCHANGAI and Franck-Fidel N’DA.
–Dr. Jean TCHANGAI is Director of Commitments in a banking group, Researcher, member of CREFE and LISST – Rural Dynamics (DR).
–Franck-Fidel N’DA is Partner at Forvis Mazars West and Central Africa, in charge of the Consulting service line, Former Financial Director of a banking group.
Size matters… but it doesn’t tell everything.
Every year, bank rankings attract a lot of attention. And often, it’s the “Total Assets” that make the headlines. The higher a bank’s Total Assets, the bigger and more powerful it appears. At first glance, it seems simple. Total Assets is the sum of all a bank’s assets, in other words, a snapshot of its size.
But the real question lies elsewhere. When it comes to assessing a bank’s actual capacity to finance the economy and its resilience in the face of potential shocks or crises, is a larger and more powerful bank necessarily stronger and more useful for economic development?
The answer is less obvious than it seems. While Total Assets is a good measure of size, it remains a partial indicator that does not reveal everything about a bank’s health or its real role in financing a country’s economy.
What Total Assets say… and what they don’t say
Yes, Total Assets reflect the magnitude of a bank. But they say little, if anything, about the quality of its assets, its profitability, its ability to manage risks, or its strength in the face of crises.
For example, two banks may each have 1,000 billion FCFA in total assets. The first bank has a portfolio of healthy loans, meaning it lends to clients who repay well and regularly, allowing it to make money and distribute its loans across different sectors. The second bank, on the other hand, is burdened by doubtful debts, meaning loans granted to clients who struggle to repay, and bears a high cost of risk, i.e., financial losses related to these defaults. The size-based ranking puts them on the same level, but the two realities are completely different.
Another example: two banks of the same size may allocate their loans very differently. One directs 60% of its loans towards financing the real economy (SMEs in the agricultural sector, infrastructure financing, etc.), while the other favors financial investments or large importing companies. Same balance sheet, but a very different role for the economy.
In other words: the size of the balance sheet is impressive, but it doesn’t tell the whole story.
Towards a more relevant ranking
The sheer volume of the balance sheet is not enough to judge a bank’s true performance. To assess its real contribution to financing an economy, it is necessary to cross-reference other indicators that are more revealing of its intermediation role and its ability to sustainably finance the economy.
• Profitability (ROE, ROA): it shows a bank’s ability to make money with the funds it manages (invested and collected funds). A bank with low profitability will struggle to attract investors or increase its loans. Conversely, a profitable bank can reinvest its earnings to expand its business and lend more.
• Loan portfolio quality: it is measured by the non-performing loan ratio, i.e., the proportion of loans in “difficulty” or not repaid on time, either because clients pay late or do not repay at all. The higher this ratio, the more the bank must set aside money to cover potential losses. This mechanically reduces its capacity to finance new projects. In other words, the fewer loans in difficulty, the more the bank can finance the economy.
• Financial strength: it is measured by the level of equity, which constitutes the “cushion” protecting the bank against losses. The larger this cushion, the more the bank can lend safely without risking falling below regulatory requirements.
• Liquidity: it is a bank’s ability to have the necessary funds to meet customer withdrawals and honor its commitments. Low liquidity forces the bank to limit its loans, especially in investment projects, while good liquidity allows it to further support the real economy.
• Operational efficiency or operating coefficient: it measures how much the bank spends to operate compared to what it earns. A bank that spends too much will have less room to, for example, lower its loan rates.
• Capacity to finance the real economy: this is the most telling indicator to measure a bank’s concrete impact on the economy and society. It shows what portion of the savings collected by the bank is actually transformed into loans for businesses.
This last indicator is particularly important in developing economies. SMEs, which represent more than 80% of businesses, often struggle to obtain credit. A bank that allocates a significant portion of its loans to them directly contributes to growth, job creation, and tangible economic development.
Beyond size-based rankings
Total Assets allow us to measure a bank’s size, but they do not reveal its capacity to finance the economy or its strength. To truly appreciate banks, it is necessary to cross-reference several indicators: profitability, lending capacity, strength, and resilience.
The real ranking should not be based solely on the size of the balance sheet, but on a bank’s lasting impact on economic growth and stability.
