As Asia leads the world in growth, will its financial systems lead too?

-James P. Walsh

Global Banks in Terms of Balance Sheets Items

Asia

Four Asian banks led a global ranking of the top four banks by revenue, profit before tax (PBT), shareholders fund, asset size, and customer deposits as of June 2021, with total revenue of US$295.51bn. In 2021, the top three banks in Asia were the Industrial and Commercial Bank of China (ICBC), China Construction Bank, and Agricultural Bank of China. All three banks are domiciled in China and are state-owned.

The top five (5) largest banks by revenue in the world have combined revenue of US$325.16bn. The game is already stacked in favour of the Chinese banks as the Chinese government is heavily invested in these banks (see chart 7 below). 

Chart 7: Top 5 International Banks by Net Revenue (US$’bn)

Post COVID-19, the financial sector in Asia and throughout the world is facing new drivers of change. One that comes to mind is the need for the formation of new operating models, as well as the quick adaptation of distribution channels to a more digital environment. Customer behaviours vary per country, thus banks' responses to those environments must be tailored accordingly. In the new reality, banks' chances will vary by country, and those with operations in numerous nations will need to be flexible to succeed.

The overall profitability of the Asia Pacific banking sector slowed in 2020, primarily due to the compressed net interest margins and the rise in impairment charges. On average, the return on average assets (ROAA) was down from 0.73% in 2019 to 0.64% in 2020. Most banks maintained solid capital and liquidity positions despite the pandemic.

Industrial and Commercial Bank of China

The state-owned bank is listed both on the Shanghai Stock Exchange and The Stock Exchange of Hong Kong Limited with a credit rating of A and A1 by S & P and Moody respectively, the rating results are in the form of “long term foreign currency deposits rating”. The market capitalization of the bank was US$254.43bn as of February 2022. The bank was ranked 1^st place in the Global 2000 by Forbes and 1^st place in the list of commercial banks of the Global 500 in Fortune for the eight consecutive years. In 2020, the Bank was able to manage the impact of the COVID-19 pandemic and changes in the external environment, net profit rose +1.4% in 2020 compared to the previous year. 9months 2021 figures also showed improvement both in profitability and asset quality. The non-Performing Loans ratio of the bank improved from 1.58% in 9months 2020 to 1.52% in 9months 2021. The operating income and profit before tax values were converted to US dollars using 6.32 CNY/US$.

Also, the bank is the largest bank globally by tier 1 capital which was US$495.58bn as of 9months 2021 recording a +9.03% rise from full year (FY) 2020 figures (see table 8 below)

Table 8: ICBC Financial Highlights

Agricultural Bank of China

The Chinese-based commercial bank, formerly known as AgBank is one of the “Big Four” owned by the state. The Bank has over 300m retail customers and 2.7m corporate clients, the bank went public in 2010 and had the world’s biggest-ever initial public offering at the time, listed on both the Shanghai Stock Exchange and the Hong Kong Stock Exchange. The Bank operates mainly through four business segments, the Corporate Finance segment, the Personal Finance segment, the Treasury segment, and the Asset Management segment.

As of February 2022, the Bank had a market capitalization of US$165.85bn, its total asset for 9months 2021 result stood at US$4.59trn (CNY28.99trn). The Agricultural Bank also improved its asset quality in the period to 1.48% and the cost-to-income ratio fell by -1.43% to 25.58% (see table 10 below).

Table 10: AgBank’s 9M 2021: Financial Highlights

The Financial Position

Total Assets

The total asset of the three top banks in the Asia economy grew considerably in 2021. With an average growth rate of +6.67%. The Industrial and Commercial Bank of China had the largest value in the two periods (2020 and 2021) with a smaller growth rate of +5.86% among its peers. The marginal growth was because of a -33.74% decrease in dues from bank and other financial institutions, -30.01% fall in derivatives assets, and -18.90% decline in the reverse purchase agreement

China Construction Bank the largest bank in the world by assets size had a growth rate of +6.71% in its total assets in the period. The total asset of the bank grew from US$4.47trn to US$4.77trn.

Agricultural Bank of China ranked third in total assets with a growth rate of +6.50% (see chart 8 below).

Chart 8: Total Assets of Top Three Asia Banks 9M’2021 (US$’trn)

Shareholders Fund

With a growth rate of +12.09%, The Industrial and Commercial Bank of China had the highest shareholder fund of US$500.52bn in 9month 2021 compared to US$446.53bn recorded in the previous year.

The increase was a result of +10.90% growth in retained earnings, +10.13% change in reserves, and a +45.64% rise in other equity instruments.

China construction bank ranked second both in value and percentage growth. The bank Shareholders' funds stood at US$ 403.19bn in 9month 2021 with a percentage change of +6.65%.

Agricultural Bank of China which ranked third in shareholders fund had the second-highest growth rate +7.52% in the period (see chart 9 below).

Chart 9: Total Equity of Top Three Asia Banks 9M’ 2021 (US$’bn)

Customers Deposits

Industrial and Commercial Bank of China also had the highest customer deposit of US$4.25trn in 9month 2021 and grew by +5.02%. While China Construction Bank had the highest growth rate of +7.85% and was the second-largest bank by customers’ deposit. Agricultural Bank drew in US$3.49trn as customers deposit with a growth rate of +6.40% (see chart 10 below).

Chart 10: Customers Deposits of Top Three Asia Banks 9M’ 2021 (US$’trn)

Loans And Advances

Agricultural Bank of China is the third-largest bank in the world by loans and advances and recorded the highest growth rate of +12.78% amongst its peers, with a value of US$ 2.56bn in 9month 2021. China Construction Bank’s had the second-highest growth rate in loans and advances, which was up by +10.59%.

The industrial and commercial bank of China with the highest loans and advances had the lowest growth rate of +9.86% in 9month 2021 (see chart 11 below).

Chart 11: Loans & Advances of Top Three Asia Banks 9M’ 2021 (US$’trn)

Downloadable Versions of Tier 1 Banks Report (PDF)

1. Executive Summary: Nigeria’s Banking Industry: The Case for Redefining Tier 1 Banks - May 28, 2022

2. Full Report: Nigeria’s Banking Industry: The Case for Redefining Tier 1 Banks - May 28, 2022