China usurps Australia for first time as the continent’s principal contributor to aggregate banking profits.

The surging economic growth of the Asian economies, led by the two tigers China and India, is reflected in the continued growth of the banking sector. Our Top 200 banks posted a 14.7% increase in aggregate Tier 1 capital to $349.4bn, aggregate assets increased 13.9% to $7105.3bn and aggregate pre-tax profits grew 64.2% to $67.4bn.

This latter figure reflects not only the significant growth in profits in the region but a return to profitability of those banks that contributed a negative $3.5bn to last year’s aggregate pre-tax profit figure. Only four banks in this year’s listing – three from Taiwan and, surprisingly, one from India – posted pre-tax losses which amounted to $392m in aggregate.

Reviewing the major countries in our Top 200, Hong Kong banks continued their profit recovery, recording $7.18bn from the nine banks in the current list. This represents 10.6% of the aggregate pre-tax profit of the Top 200 generated from only 5.7% of the aggregate assets.

Taiwan’s pre-tax profit recovery continues with an aggregate of $4.9bn, up 142% on the previous year, from the largest group of banks (38) in the list. Consolidation in the banking sector is inching forward but consolidated reporting of regulatory capital and similar financial parameters continues to lag behind. A major concern for Taiwan’s banks is the large-scale migration of manufacturing to the Chinese mainland and the potential impact of that on the banks’ business.

Tsunami fallout

Thailand’s economy remains buoyant with GDP growth of 6.1% in 2004, unemployment low at 2.1% and inflation moving up to 2.7% as a result of increases in food and energy prices. However, the effects of the tsunami that hit in the last week of 2004 is expected to have a marked effect on tourism and investment in the southern part of the country this year.

In early 2004, DBS Thai Danu merged with Thai Military Bank and the Industrial Financial Corporation leaving DBS, the Singapore bank, with a 16.1% holding and a contract to manage the merged entity. The new enlarged Thai Military Bank rose nine places in the listing to 81.

The economic powerhouse of the region is China whose largest banks dominate our listing, occupying the top three places. Bank of China is top with a Tier 1 capital of $27.6bn, well ahead of China Construction Bank ($23.5bn) and even further ahead of Industrial and Commercial Bank of China ($20.2bn). Chinese banks, of which there are 29 in this year’s list, an increase of 11 over last year, account for 32% of the aggregate Tier 1 capital of the Top 200, 38.8% of the aggregate assets and, this year, 22.6% of the aggregate pre-tax profits.

This year China has finally overtaken Australia as the main contributor to aggregate pre-tax profits although Australia’s 12 banks still provide 20.5% of this figure from only 13.8% of aggregate assets and 14% of aggregate Tier 1 capital.

The other rapidly developing economy in the region, India, is represented by 32 banks in our listing, which contribute only 6% of the aggregate Tier 1 capital, 6.5% of the aggregate assets and 8.5% of aggregate pre-tax profits. Indian banks remain relatively small players.

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