China's banks hit new heights: Top 50 Chinese Banks -

Rankings & data / Best-performing banks

Charles Piggott | 2/09/2009 12:00 am

Supported by a series of government measures, China's banks recorded a surge in growth in 2008 despite the global credit crisis. Writer Charles Piggott

The Banker's Top 50 Chinese banks ranking this year shows that the growth of China's financial sector may have been quickened by the credit crisis. Backed by interest rate cuts, lower reserve requirements and a $585bn government infrastructure-focused stimulus package, the average bank listed increased its total assets by 37% last year, compared with average growth of 33.5% in 2007.

The Top 50 Chinese banks also increased Tier 1 capital by an average of 44.9% in US dollar terms. The government's decision to underwrite continued economic growth with a huge increase in new bank lending has been a windfall for the country's banks, most of which ended the year with record profits and more capital than ever before.

The top three Chinese banks remain the same: Industrial and Commercial Bank of China (ICBC) ranks top, followed by Bank of China and China Construction Bank Corporation. The big jump comes from Agricultural Bank of China (which is preparing to go public), which propelled itself to the number four spot ahead of Bank of Communications, with a huge increase in its Tier 1 capital. Other headline figures include ICBC's $21.3bn pre-tax profit, up 34.6% on the previous year and the largest profit recorded by any bank in the world in 2008.

The growth of China's banking sector is being driven by a huge increase in new lending (equivalent to 25% of annual gross domestic product in the first six months of 2009). Last year, China's four largest banks each increased their total assets by more than 20% and China's smaller and medium-sized banks grew even faster, pushing the average increase in total assets among the Top 50 banks to 37%.

Star performers

The best performing bank in the ranking is Shanghai Pudong Development Bank (in which Citibank bought a minority interest in 2003), with a return-on-average capital (RoAC) of 48.06%. The fastest riser in the ranking is Huishang Bank, which jumped 18 places to rank at 12. Huishang Bank, which earlier this year became the first Chinese bank to form a joint venture auto-finance company with a Chinese car-maker, increased its Tier 1 capital by 278% in 2008.

The highest entrant in this year's ranking is Chongqing Rural Commercial Bank, based in the biggest industrial and commercial region in western China, an area that has seen rising levels of both Chinese and foreign investment in recent years. The region, which has been the focus of the government's financial and economic development of western China, is home to another of the country's fastest growing banks: the restructured Three Gorges Bank (formerly Wanzhou Commercial Bank) recorded the largest increase in assets in 2008 with an increase of 174.9%.

The second fastest growing bank is Bohai Bank in China's northern city of Tianjin, which increased total assets by 104.8% last year to $9.1bn. The bank, in which the UK's Standard Chartered holds a 19.9% stake, was only established in 2005, but has already announced its ambition to go public, with a listing either in mainland China or in Hong Kong by 2012/13. The bank aims to quadruple its total assets by the time of the initial public offering (IPO) and expand its presence from eight mainland cities to 20 next year.

Alongside ICBC, China's other large banks also reported gargantuan profits in 2008: China Construction Bank Corporation reported a huge pre-tax profit of $17.5bn and Bank of China's year-end pre-tax profit came in at $12.6bn.

However, China's rapid financial sector expansion may have already peaked, with the central bank reporting markedly slower lending growth in July this year. Competition to offer new loans has already reduced lending margins and the RoAC among China's Top 50 banks had fallen significantly by the end of 2008 to 25.9%, from 36.6% at the end of 2007. Furthermore, capital growth has not kept pace with loan growth. The average Bank for International Settlements (BIS) capital adequacy level in China's Top 50 banks dipped from 15.04% at the end of 2007 to 14.35% at the end of 2008.

Another leap forward

The next big test for China's financial sector will be the listing of the country's fourth largest bank, Agricultural Bank of China. The bank more than doubled its Tier 1 capital in 2008 following a $19bn capital injection in the final quarter of 2008 from China's sovereign wealth fund.

Agricultural Bank of China is the last of China's top four lending banks to go public and its IPO later this year or early next year is expected to be somewhere in between the $11.2bn raised by Bank of China in June 2006 and the $22bn raised by ICBC in October 2006. The bank's plans to go public before the end of this year may be hampered by the fact that it still lags behind China's three other large state-owned banks on many indicators. It has a higher cost-to-income ratio, a higher non-performing loan (NPL) ratio, a lower BIS capital adequacy ratio and a lower return on assets than its immediate peers. Last year, the government helped Agricultural Bank of China to restructure its loan book, reducing NPLs from 23.5% at the end of 2007 to a much healthier 4.32% at the end of 2008.

Although China has allowed growing levels of foreign investment into its financial sector, several international groups have recently been forced to sell part or all of their stakes in Chinese banks. Among them, Goldman Sachs, Allianz and American Express (which all sold stakes in ICBC), Bank of America (which sold its $7.3bn stake in China Construction Bank in May) and UBS, Royal Bank of Scotland and Hong Kong billionaire Li Ka-shing (which have all sold stakes in Bank of China). Both Goldman Sachs and Li Ka-shing are, however, committed to holding their remaining shares in Chinese banks in the short to medium term.