China’s economic prowess is beyond question, but other Asian countries are performing just as well, if not better. Danielle Myles reports.  

For some time, China has been Asia’s most closely watched banking market, and rightly so. Its lenders have climbed The Banker’s annual Top 1000, dislodging the US to claim the top four spots for the first time in this year’s rankings. The government has liberalised foreign investment restrictions in Chinese banks and announced plans to improve overseas firms’ local market access.

To top it off, Chinese banks generated some $322bn in pre-tax profits during 2017, more than any other country in the world. It is an impressive figure, but based on other profitability measures, China has been outshone in recent years by some of Asia’s other markets.  

Biggest improvers

China’s profits rose 9% in 2017, a sliver of the 81% spike posted by South Korea. Globally, the only other countries to post higher year-on-year growth were the UK and Kazakhstan. What is more, South Korean banks were working from a high base, having seen their profits jump 134% just three years prior.

Profitability in Hong Kong grew more than three times faster than in China in 2017, while profit growth in Taiwan has eclipsed its biggest neighbour for four years running. Both markets have been led by their biggest lenders, Bank of East Asia and CTBC Bank, respectively, whose recoveries outstripped the local average.

Further south, Australia put in a characteristically solid profit performance in 2017, boosting its bottom line by nearly 25%. Its return on capital (ROC) ratio, which measures how efficiently banks are using Tier 1 capital, has hovered between 18.5% and 26% in recent years, compared with a global average of 13.5% last year. China’s ROC ratio has steadily shrunk since 2013, and stood at 15.6% at the end of 2017, just two percentage points above the global average. This shows that while China’s capital base has rapidly expanded, its profits have not kept pace.

Asean’s lift-off

Comparing China’s profits with assets paints a similar picture. The country’s latest return on assets (ROA) ratio exceeds the 0.9% global average, but has steadily dropped from 1.5% in 2013.

In terms of both ROA and ROC, Asia’s standout sub-region is the Association of South-east Asian Nations, with the best performer being its biggest economy, Indonesia. For the past five years Indonesia’s ROA has been double that of China’s, while its ROC has also consistently outperformed.

What makes Indonesia’s ROC particularly impressive is that its banks have posted double-digit Tier 1 growth in recent years. The national ROC slipped in the three years to 2016 because the country’s profits did not grow at the same breakneck pace as capital, but nudged up in 2017 despite a 36% spike in its capital base. Likewise, its ROA increased in 2017 despite an 11% increase in assets.

Malaysia’s ROC has kept pace with China’s, and its ROA has consistently outperformed it. Malaysia’s profits grew a respectable 21.2% in 2017, a fraction more than Singapore’s, which drove its ROA a few notches higher despite its asset expansion. In 2017, Thailand and the Philippines posted ROA of 1.44% and 1.43%, respectively.

Among Asia’s biggest bank sectors, there are only two that China regularly outperforms across all profit indicators. In the region’s most advanced market, Japan, margins continue to be squeezed by the Bank of Japan’s long-running negative interest rate policy. In India, profits have diminished since 2015 when the central bank started pressuring lenders to increase their loan loss provisions to reflect the impaired assets sitting on their balance sheets.

Databank 0818

All data sourced from www.thebankerdatabase.com.

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