China's banks consolidate dominance of Asia

In what came as a shock to many exuberant analysts, China's juggernaut economy slowed dramatically in the last months of 2008 with annual gross domestic product growth falling to 9.4% compared with 11.4% for 2007. The World Bank's recent forecast for 2009, which puts the Asian titan's economic output at a mere 7.2%, has been buoyed by a strong stimulus package of some $586bn.

Nevertheless, the growing prominence of China's banks within the Top 1000 reflects the enduring strength and growth potential of the Chinese economy.

The number of Chinese banks in the Top 25 regional rankings has grown from eight in 2008 to nine in 2009, meaning that they now account for 36% of the Top 25 Asian banks.

China continues to dominate the Top 25 Asian list, with Industrial and Commercial Bank of China (ICBC), Bank of China and China Construction Bank (CCB) maintaining their hold on the top three positions. Each bank achieved a Tier 1 capital increase in 2008 compared with the previous year. As with last year, CCB again boasted the biggest increase in Tier 1 capital among the three banks, with its cushion growing from $52.3bn to $63.1bn, representing a growth of 20.68%.

This year's rankings provide further evidence that Chinese banks are consolidating their dominance of the Asian banking sector. The three Chinese behemoths are joined by Agricultural Bank of China, which jumped eight places in the Asian regional ranking to take the number four spot. The bank enjoyed a Tier 1 capital increase of some $27.8bn for 2008, representing a staggering one-year growth of 229.66%, the highest growth among both the Top 25 Asian list and the Top 25 Chinese banks list. Meanwhile, China CITIC Bank moved up the regional rankings by 11 places, and China Minsheng Banking Corp rose two places.

Furthermore, despite the global economic downturn, China's banks grew their total aggregate Tier 1 capital by 29.9% during 2008. Of the Top 25 Asian Tier 1 capital aggregate, Chinese banks now account for 59.96%, compared with 53.44% last year. Of the total Asian Tier 1 capital aggregate within the Top 1000, Chinese banks now account for a staggering 48.77% compared with last year's 43.86%. In short, China now constitutes just under 50% of the entire Asian banking sector, excluding Japan.

Just as impressive, Chinese banks account for 58.01% of Asia's total contribution to the Top 1000 aggregate pre-tax profits, compared with 50.42% last year. As with their Asian peers, however, China's banks posted an overall decline in profits on capital, which fell by 5.2 percentage points from 27.15% in 2008 to 21.95% in the 2009 listings, although it is the second smallest decline among the region's major economies, including Taiwan, South Korea, Singapore and India, and a far smaller reduction than those of the US and EU.

Globally, China also put in an impressive performance, boasting eight new arrivals to the Top 1000 rankings and five of the highest movers, with Huishang Bank rising an astounding 422 places globally as the third highest mover overall. The ascendance of Agricultural Bank of China, which jumped 47 places to take the 24th spot globally, means Chinese banks now hold four of the Top 25 places overall. In total, China's banks account for just over 8.14% of the Top 1000 total Tier 1 capital aggregate.

Among the Top 1000 banks, ICBC and CCB posted the greatest pre-tax profits at $21.26bn and $17.52bn, respectively. Bank of China also took the fourth spot among the most profitable banks, posting pre-tax profits of $12.62bn.

Chinese output is expected to rise to 7.7% in 2010. In the meantime, however, the government is likely to lean on local lenders in a bid to prop up the economy and stem unemployment. This has the potential to put a strain on Chinese banks, particularly if economic output does not resume as expected.

Top 25 China ($M)