While China’s ‘Big Four’ state-owned banks are growing fast and continue to dominate The Banker’s Top 100 Chinese Banks listing, the country’s smaller banks are growing even faster and account for an increasingly large slice of the overall banking market. Also, unlike many Western banking markets, which are suffering from the US subprime crisis and the resulting financial crunch, Chinese banks are surging ahead on all fronts with strong growth and record profits.
The aggregate pre-tax profits of this year’s Top 100 Chinese banks listing (which included mostly 2007 results) almost doubled compared to last year’s listing (see June 2007 issue), rising by 95.7% to Rmb570.5bn ($78.1bn) from Rmb291.6bn last year.
But the key growth was not from the Big Four (ICBC, Bank of China, China Construction Bank and Agricultural Bank of China) but from the other 96 banks.
While the profits for the Big Four rose by 55.9% to Rmb339.5bn ($46.5bn), the profits of the others rose dramatically, more than tripling to Rmb231bn ($31.6bn) from Rmb73.8bn the previous year.
Shifting roles
The change is significant because the dominant role of the Big Four state-owned banks has been cut considerably. While the four accounted for 74.7% of aggregate profits last year, their share has dropped to 59.5% in this year’s listing, emphasising the expanding role of all the other banks.
The role of the Big Four is declining and not just in profits. In terms of Tier 1 capital, the four now account for 68.8% of aggregate capital compared to 77.7% in last year’s listing. While capital of the four expanded only modestly, the aggregate capital of the Top 100 grew by a sizeable 20.4% to reach Rmb2001.7bn ($274bn), with China CITIC Bank increasing its Tier 1 capital by 163.4% to Rmb81936m ($11.2bn) following a $5.4bn initial public offering in April last year.
In assets, the four major banks expanded significantly in fiscal 2007 but the other banks expanded even more. While the aggregate assets figure of the Top 100 grew by 24.3% to reach Rmb40033.2bn ($5480.6bn) the share of the Big Four fell to 68.3% from 73.3% last year.
New faces
Important additions to the list this year are China Everbright Bank and Guangdong Development Bank, which were excluded from last year’s listing because their results dated back to 2003, but were included this year with end-2007 results which put them in 12th and 13th place respectively.
The structure of the Top 100 reflects some of the changes in the sector. Along with the Big Four, the total is made up of 53 city commercial banks, down from 65 last year; 13 rural commercial banks, the same as last year; and 30 other banks, including joint-stock commercial banks and BNP Paribas (China), up from 18 last year.
The role of the 53 city commercial banks has declined in all measures, slipping to 4.9%, 3.9% and 2.2% of aggregate totals in Tier 1 capital, assets and pre-tax profits respectively. The 13 rural commercial banks have fared similarly, accounting for 1.9%. 1.7% and 1% of capital, assets and profits respectively.
The big movers in the listing come from among the 30 ‘other’ banks, which as a group have significantly increased their share of the banking market. These 30 banks now account for 25.1%, 26.3% and 37.3% of capital, assets and profits, up from their respective shares of 15.5%, 19.4% and 19.2% of last year’s Top 100 aggregates.
In examining the Top 100, the leading 10 banks account for 86.8% of the aggregate Tier 1 capital and are expected to be the driving force behind China’s banking sector for years to come. While ICBC, Bank of China and China Construction Bank retain their leading positions and in capital terms are more than three times larger than their nearest competitor, the next seven banks are gaining ground and are expected to continue to expand.
CITIC on the up
Bank of Communications, which is 19.9% owned by HSBC, moved into fourth place ahead of the unreconstructed state-owned Agricultural Bank. China CITIC Bank’s jump to sixth place, ahead of rivals China Merchants Bank and China Minsheng Bank Corp, represents an impressive development among these aggressively expanding middle-order banks, which are likely to expand their franchises considerably.
The leading city commercial bank is Nanjing City Commercial Bank, which almost quadrupled its Tier 1 capital to Rmb9391m ($1286m) to reach 18th position, while the leading rural commercial bank is Shanghai Rural Commercial Bank, which came in 19th with capital of Rmb8511m ($1165.6m).
The leading 20 banks in China have capital in excess of $1bn, compared to just 13 of them last year, and 45 Chinese banks made The Banker’s Top 1000 World Banks listing in this year’s July issue, compared to 31 the previous year. China’s banking sector is gaining significant momentum, and not just from the Big Four.
