How to evaluate banks: easy methods and advanced tools

Insights 26 April 2019


The financial health of any economic entity closely depends on the soundness of the banking system.

Unfortunately, the economic downturn has highlighted how vulnerable banks are and how much a collapse can damage the global economic and financial system.

In the following paragraphs we’ll see how to evaluate a bank’s creditworthiness through three different analysis tools.

The first two allow a simple and quick analysis to private citizen and companies, the third one, oplon Risk Platform, allows to include the creditworthiness analysis of any credit institution within an automated framework for the exposure risk assessment, streamlining the investment management of banks, credit consortia, financial institutions and investors.

CET1 ratio

The first step to evaluate a bank’s creditworthiness is verifying the bank’s capital adequacy by measuring the Common Equity Tier1 ratio, which compares the Tier1 (= Total equity - Revaluation reserves) to the risk-weighted assets. 

The ratio is shown on the balance sheet (generally published on the bank’s website) and the higher the value, the greater the bank’s capital strength. According to the ECB regulation, it can never be less than 8%.


Together with the Common Equity Tier1 ratio, a thorough analysis of the bank’s capital adequacy should also consider other relevant indexes, such as Leverage and Total Capital Ratio. An assessment based solely on the CET1 ratio does not take into account the bank’s profitability, asset quality, liquidity and management efficiency (in this article we explain how to appraise each area).

A more reliable way to assess a bank's soundness is to verify the rating assigned by the Rating Agencies authorized to issue ratings on financial institutions.

The credit risk analyses performed by rating agencies include both internal data (like bank’s balance sheets, corporate longevity, exposure towards foreign countries, etc) and external variables (like the country GPD, inflation, unemployment rate, political risk…), covering both microeconomic and macroeconomic aspects

The rating assigned is a benchmark for any player on the stocks markets.

oplon Risk Platform

The evaluation of a bank's creditworthiness can be also carried out in a few seconds using oplon Risk Platform, which allows the credit risk analysis of any company or bank in the world.

oplon applies the rating methodology developed by modefinance, the first Fintech Credit Rating Agency authorized by the European Securities and Markets Authority (ESMA) to issue credit ratings both on corporates and financial institutions. modefinance rating methodology is based on MORE, a multi-objective algorithm for the risk analysis of companies (MORE) and banks (MORE for banks).

The algorithm applies Artificial Intelligence to analyze all financial and economic areas and provides an immediate assessment of the reliability of the audited entity.

The analysis can be carried out in just a few minutes; once you have uploaded the bank’s balance sheet, oplon automatically calculates the bank's credit score.

The following analysis steps allow to add further information through multiple-choice qualitative questionnaires or to perform a massive analysis of the client portfolio.

The bank’s credit score is automatically updated according to the outcome of each step.

Further informations

Please visit oplon Risk Platform