In The Banker last month, we brought our readers up-to-date statistics on the world's Top 1000 banks. This issue, our editors provide analysis of this year's key trends and snapshots of some of the countries featured.
The 'second cut' of this year's Top 1000 reveals in stark contrast the disparate fortunes of the world's domestic financial systems. While the US and much of Europe has seen profitability decimated and numerous bank collapses or forced rescue mergers, other regions have been relatively insulated from the financial meltdown. Many systems have remained extremely profitable - and some have profited specifically because of the crisis elsewhere.
US and European banks are largely notable by their absence from the top 25 global banks by profit on Tier 1 capital and profit on assets. Only two US and one European bank are present in the top 25 by return on capital, and only three US firms made it into the top 25 by profit on assets. Instead, these rankings feature much smaller banks from the periphery of the Top 1000; banks from Japan, China, Brazil, Turkey, Nigeria, Iran and Panama. The average return on assets (ROA) for US banks is just 0.05%; in Nigeria, it is 3.02%.
In Lebanon, for example, the country's banks enjoyed record profits in 2008. On aggregate, they were up by nearly 27% on last year's ranking. As depositors lost confidence in foreign-owned banks, funds poured into domestic banks and total assets in the system were up by 11% compared with the 2008 rankings. This enabled Lebanese banks to increase domestic lending by more than $5bn last year. And, crucially, ROA also increased - from 1.09% to 1.28%.
This picture is repeated in other domestic banking systems. The US may still have the three biggest banks in the world by Tier 1 capital, but JPMorgan, Bank of America and Citigroup have seen their profits on average Tier 1 capital plummet to 2.47%, 4.34% and -51.02%, respectively. In Turkey, despite annual inflation of more than 10% and a 30% collapse in the value of the Turkish lira against the dollar, the top five banks averaged a return on Tier 1 capital of 22.28%. All but one of the country's 11 banks in the Top 1000 made double-digit returns on capital.
In India, too, the banking system largely performed well. In the 2009 ranking, the average annual increase in pre-tax profits for the 32 banks in The Banker's Top 1000 was a healthy 20.4%, while the average return on Tier 1 capital was 19.97%. Not one bank in our Indian ranking made a loss, compared with about one-third of the US banks listed. And Indian banks are growing: they increased their Tier 1 capital by an average of 45.38%.
Over the past year it has become strikingly clear that the most crucial determinant of better system-wide performance has been stricter regulatory and capital regimes. Banks in Canada and Turkey, for example, were prevented by their regulators from dabbling in exotic instruments and are required to hold more capital than many other jurisdictions (in Turkey's case, as a response to the financial crisis which engulfed the country's banks in 2001) and this has kept assets clean and capital high.
Conservatism pays off
More conservative management has also had an obvious pay-off in those jurisdictions where some banks made huge losses. In the UK, for instance, where headlines have been dominated by the losses of Royal Bank of Scotland, some banks have done well. Standard Chartered, for example, increased its pre-tax profits by 19.2% on the previous year and achieved 26.86% profit on capital. The Co-operative bank also increased pre-tax profits by an impressive 52.7%, even if its profit on capital was just 2.52%.
Given the greater impetus to achieve better regulation and greater transparency, one country particularly disappointed in terms of disclosure. Germany's fragmented financial system has done badly in the crisis: 17 banks suffered losses; 11 lost more than $100m and seven lost more than $1bn. More ominously, the crisis has so far not spurred any real consolidation, nor encouraged greater financial transparency. More than 40 of the 82 German banks in the Top 1000 are sparkassen (local savings banks), protected by the government as they are useful credit vehicles in local economies, but with none of the reporting requirements of listed banks. A shocking 34 of these only provided 2007 figures. Considering that disclosure of Tier 1 is a regulatory requirement, this reluctance is all the more worrisome.
What will the future hold? Although some countries were insulated from the crisis by stricter regulatory and capital regimes, they are not immune from the global economic slowdown, which will only be fully visible in 2009's annual figures and next year's Top 1000. Many challenges remain: Nigeria's banks were hit hard this year and the story will play itself out in our 2010 figures; Iran's banks, although growing well, face oil price and political instability; Mexico is faced by its worst economic outlook for 15 years; many of Russia's banks find the capital markets still closed to them. Next year's ranking may tell a very different story.
