The good news is that banks around the globe go into the Covid-19 economic crisis much stronger than they entered the financial crisis a decade ago. The aggregate Tier 1 capital of the Top 1000 banks has risen to $8,796bn, the highest amount ever and 80% higher than a decade ago.
The bad news is that after a decade’s recovery banks will see much of their hard work undone as they write off bad loans related to the current malaise. For the rest of this year and next they will be taking hits to their balance sheets.
China’s banks which have dominated the ranking for the past 10 years continued to strengthen their position. The top four banks are all Chinese (see table) – ICBC, China Construction Bank, Agricultural Bank of China and Bank of China – and they are 72% larger in capital terms than the big four American banks – JPMorgan Chase, Bank of America, Wells Fargo and Citigroup. Last year they were only 51% larger.
Chinese banks in total increased their Tier 1 capital by 14% since last year (against 3% for US banks) and they increased their profits by nearly 6% to $330billion whereas US profits fell slightly. China’s banks make nearly one third of global banking profits and ICBC and China Construction Bank are the world’s two most profitable banks in absolute terms.
But American banks can console themselves with the fact that they are generally more efficient. US banks make 22% of profits using only 15% of assets whereas Chinese banks use 25% of global assets to make 29% of global profits.
Europe continues to be problematic with poor results at some of its largest banks – HSBC, Deutsche and Santander – which in turn hit country results in the UK, Germany and Spain. Profits fell 12.7% in the UK, 19.4% in Germany and 15.77% in Spain.
But Europe has seen recovery in some markets such as Italy where profits increased 25.81% and Greece which saw its banking industry back in profit for the first time in six years.
The Banker published its first ranking in 1970 (see table) and the Top 10 at that time was dominated by US banks. European banks were strong in 1980 and Japanese banks in 1990 at the end of Japan’s bubble economy. Since 2010 Chinese banks have increased their grip on the ranking to get to their current dominant position. But who will top the ranking in 50 years time or even 10 years? Nothing is certain as we can see from the past and with China and the US going head to head in a new Cold War it may be that banks from both countries suffer and those from places not involved in the battle improve their positions.
Brian Caplen is the editor of The Banker. Follow him on Twitter @BrianCaplen
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