It has been impossible to escape the retrospectives on the 10 years since Lehman Brothers collapsed in late 2008, the year when the Royal Bank of Scotland (RBS) was briefly the biggest bank in the world by total assets and Bear Stearns was 'fine'. The true depth of the liquidity crisis in the global banking sector was only beginning to become apparent on balance sheets in The Banker's 2009 Top 1000 World Banks ranking. US banks made up the top three, with JPMorgan at the front of the pack. The UK's RBS and HSBC rounded off the top five, with ICBC the lone Chinese bank in eighth place.
Top 1000 AggregatesÂ
 | 2019 ($bn) | 2018 ($bn) | change from previous year (%, bps) |
Aggregate Tier 1 | 8,292 | 8,235 | 0.69% |
Aggregate Total Assets | 122,801 | 123,653 | -0.69% |
Aggregate Pre-Tax Profits | 1,135 | 1,112 | 2.05% |
Profits/Tier 1 (%) | 10.87 | 13.50 | net income used in 2018 |
Return on Assets (%) | 0.73 | 0.90 | net income used in 2018 |
It would not be long, however, before Chinese institutions began their meteoric rise up the ranking, progressively pushing their US rivals further down the ladder. For the second year in a row, the top four banks are from China, with ICBC topping the chart for the seventh consecutive year.
Meanwhile, on the whole, since the financial crisis European banks have either shrunk, or they have grown at a much slower rate than their Chinese and US counterparts. In 2009, the top 10 included four European institutions. From 2012, only HSBC has been present, finishing ninth in the 2019 list.
The changing regional profile of the banks in the Top 1000 over the past decade further illustrates this divergence. Between 2009 and 2019, 16 central and eastern European (CEE) institutions and 92 western European banks have dropped out of the list. Japan is the only other region to record a loss (of 10 banks) over the past 10 years.
In contrast, the biggest increases in the number of banks have come from China and Asia Pacific (excluding Japan and China), which have seen 84 and 26 banks enter the charts, respectively. North America initially had a drop-off in the number of banks in the years following the financial crisis, but has made a comeback over the past five years, adding 20 banks to the Top 1000 from 2014 onward, eight of them in the past year alone.
Brave new world
There are many ways in which the banking sector is healthier than it was before the crisis hit. Tier 1 capital at the world’s 1000 largest banks has never been higher than the $8292bn at the end of 2018 (the review year that the Top 1000 World Banks ranking is based around), up from $8235bn the year before. The aggregate Tier 1 capital-to-assets ratio has strengthened from 5.14% in the 2010 ranking to 6.75% in the 2019 ranking.
A worldwide glut in banking regulations has put more guardrails up to prevent collapses in any future crisis. Bank balance sheets have been increasingly de-risked as requirements for capital buffers became stricter. Minimum Tier 1 capital in the Top 1000 has gone from $247m to $492m between 2008 and 2019. Banks tend to be better managed and more transparent than they were, instilling more confidence in the soundness of the system.
This is only part of the story, however. The broad-based double-digit growth in Tier 1 capital seen in 2018’s ranking has slumped. Aside from a surge in Central America, Tier 1 capital growth dropped off and even reversed in Africa and Europe. Western European banks reported an overall 4.16% decline, with CEE close behind at -2.99%.
For European banks under the regulatory authority of the European Central Bank (ECB), part of the decline can be attributed to the implementation of new accounting standards, IFRS 9. As an expected loss impairment model, banks require greater loan loss provisions than under the previous incurred loss model. The average common equity Tier 1 capital ratio of EU global systemically important banks declined slightly in the 2018 financial year to 13.1% from 2017’s 13.4%, but remains well above the requirements set out by the Basel III directive.
Financial markets have undergone a transformation of their own over the past decade. In the aftermath of the credit crunch, central banks cut interest rates and started up huge quantitative easing programmes in an effort to invigorate sluggish markets. While the measures were successful in stimulating capital markets activity, weaning investors and issuers off of loose monetary policies has proved tricky.
Volatility on the whole has been at a low ebb over 2018 – about the same as it was in 2017. However, 2018 was marred by short-lived but deep shocks. Deal activity dropped off a cliff in the second half of the year, severely affecting the size of the wallet for investment banks across the globe. European banks were hit particularly hard by the swing in sentiment, but the slowdown in growth for banks has been universal.
Total assets on aggregate declined by 0.69% over the course of 2018. While in itself this drop is small, it is in stark contrast to the 8.96% asset growth across 2017. The data shows that though much progress has been made post-crisis, there are signs the recovery is starting to flag.
Regions By Total Tier1/Assets/Pre-Tax Profits ($Bn)
 | Tier 1 Capital | Assets | Pre-tax profits |
China | 2,171 | 29,225 | 312 |
US | 1,420 | 16,532 | 255 |
Eurozone | 1,364 | 25,808 | 139 |
Japan | 688 | 13,082 | 40 |
UK | 399 | 7,369 | 44 |
Profits divided
After a very good year in 2017, profits showed a general decline. Aggregate pre-tax profit growth in 2017 was at a healthy 15.57% year on year, but nearly ground to a halt, inching up a mere 2.05% to $1135bn in the 2018 financial results. The overall Top 1000 return on equity (ROE) ratio (the most commonly used measure to assess profitability) slumped by more than two percentage points to 9.56%, well short of the 12% commonly considered a good level for the banking sector.
In a year of haves and have-nots, Asian banks took the biggest beating, fronted by an overall pre-tax profit decline in both China and Japan. While the top four Chinese banks posted year-on-year increases in pre-tax profits of between 6.99% and 12.81% in the 2018 ranking, this year’s Top 1000 shows a contraction in profits of between -0.12% and -2.94% among the quartet.
Of the 18 Chinese banks in the top 100, only three boosted profits in this year's ranking. In terms of net income, the global share of profits for the Asia-Pacific region came in at 41.74%, compared with 2018’s 43.38% – though this was based on pre-tax profits.
Eurozone banks had an uninspiring 2018 after the stellar results they recorded in 2017. Pre-tax profits increased by $2bn to $139bn in the 2019 Top 1000. Western Europe brought in 18.59% of the global share of net income profits, while CEE accounted for 2.68%. Banks in the UK put up a good showing, with a near 20% rise in pre-tax profit to $44bn. HSBC, RBS and Barclays provided bright spots with year-on-year increases of 15.86%, 40.53% and a whopping 118.19%, respectively.
Regional Aggregate Profitability
Region | ROA | ROE | ROC |
Africa | 1.56 | 16.36 | 19.98 |
China | 0.89 | 11.63 | 11.92 |
Japan | 0.22 | 4.03 | 4.26 |
Asia Pacific (exluding China and Japan) | 0.68 | 9.33 | 9.92 |
Central and Eastern Europe | 1.78 | 15.31 | 16.14 |
Europe | 0.43 | 6.71 | 7.90 |
Middle East | 1.45 | 11.72 | 12.77 |
North America | 1.16 | 11.74 | 14.82 |
Latin America (total) | 1.37 | 14.70 | 17.79 |
A rocky oil price and a delicate political situation in the Middle East have done little to affect local banks. Performance was solid with the notable exception of Iran’s sole entry in the ranking. The US withdrew from the nuclear deal with Iran in mid-2018 and imposed sanctions later in the year. Qatari banks, despite the blockade imposed by its neighbours, increased both assets and profits, and Qatar National Bank has taken back the crown from First Abu Dhabi Bank as the biggest Middle Eastern institution in the ranking.
The US continued its good profitability record, increasing pre-tax profits by more than 13% to a total of $255bn. Despite a more challenging market environment for half of 2018, all 14 US banks in the top 100 posted strong pre-tax profit growth of on average around mid-double digits. North America accounted for more than one-quarter of aggregate global net income, with a 26.98% share. In the previous ranking, which used pre-tax profits, North America had a 24.28% share.
US banks remain best in class in terms of profitability, far outpacing their global rivals, but are also some of the most capital and cost efficient institutions. To illustrate, Chinese institutions hold a 24% share of global assets and account for a 28% slice of aggregate profits of the Top 1000 banks. Though US banks only have just over half as many assets at 13%, they bring in a 23% slice of the global share.
Tax division
This is the first year The Banker’s Top 1000 World Banks ranking has used net income rather than pre-tax profits as the basis for return on assets (ROA) and ROE. Though net income provides a more accurate picture of a bank’s real take-home earnings, there are certain countries and regions that do not pay taxes on bank revenues, which is why The Banker used pre-tax profits in the past. However, the skew from a small number of taxless regimes is relatively small. Â
In fact, using net income allows for an interesting insight into how tax regimes affect the banking industry in different regions. Continuing a comparison of the US vs China, an examination of pre-tax and net profits reveals a more accurate picture of profitability and the effects of national tax regimes.
Historically, China has imposed a lower tax rate on its banks than the US. Data shows an overall downward trend in taxation, going from 23.2% of pre-tax profits in the 2013 ranking to 17.01% in this ranking. The US has had a generally opposite curve, from 24.2% in 2013 to a big peak of 42.43% in 2018. However, US president Donald Trump’s 2018 tax reform shows up clearly in the 2019 Top 1000 ranking. Taxes in the US more than halved to 19.5% of pre-tax profits. The gap in tax rates and the advantage of Chinese banks over US institutions has nearly closed in the space of one year.
Between 2009 and 2019, assets at Chinese institutions have grown enormously at a compound annual growth rate (CAGR) of 15.76%. The figure for US banks are a much smaller 2.74%. However, the US crushes China when it comes to pre-tax profit growth, with a CAGR of 23.74% over 2010 to 2019, compared with China’s 13.24%. US pre-tax profits in 2009 were heavily negative, making the turnaround all the more impressive.
A closer look at ROA, which shows profits earned against a bank’s resources, illustrates how the US’s stellar profit growth eventually outpaced China’s faster asset growth advantage in 2016. The 2018 US tax break only cemented this lead. In the 2019 ranking, it clocks in at an average ROA of 1.54% based on pre-tax profits and 1.24% based on net income, compared with 1.07% and 0.89% in China, respectively.
Despite a continued higher tax burden, growth in net income for US banks between 2014 and 2019 has been at a much faster pace of 9.72% CAGR, compared with a 2.76% CAGR over the same period for Chinese banks. Banks may be bigger in China, but US banks appear to be much more efficient institutions.
Ten Biggest Moves From Loss To Profit ($M)
Bank Name | Â Pre-Tax Profits | Previous Pre-Tax Profits | Recovery |
Otkritie Financial Corporation Bank | 660 | -7,516 | 8,176 |
State Bank of India | 755 | -1,883 | 2,637 |
PrivatBank | 459 | -851 | 1,309 |
Unipol Banca | 41 | -1,200 | 1,242 |
Liberbank Group | 161 | -547 | 708 |
Hamburg Commercial Bank | 111 | -546 | 657 |
Bank of Baroda | 228 | -324 | 551 |
Hellenic Bank | 367 | -58 | 426 |
Russian Agricultural Bank | 108 | -254 | 362 |
EFG Group | 82 | -73 | 154 |
India's issues
From the soaring dragon to the stumbling tiger: India’s banks had a horrible year in 2017, and 2018 showed little improvement. Of the top 25 loss-making institutions, a jarring 15 are Indian; Mumbai-headquartered IDBI posted the biggest loss of the Top 1000 banks at $3.28bn.
Indian banks are still feeling the pinch from the hardened stance on non-performing loan (NPL) portfolios at state-owned institutions adopted by the Reserve Bank of India (RBI) in 2015, which implemented measures to address long-standing bad loan problems and restrict the growth of weakly capitalised banks. While the stricter policy should lead to a stronger and safer banking system in the long run, in the short term it precipitated a sharp rise in impairment charges on loan books.
Pre-tax profits dipped dramatically in India in the 2018 Top 1000 ranking, though there has been a partial recovery in the 2019 list. The 12 largest Indian banks, which hold 75% of the assets, have improved the most, upping pre-tax profit to $6.36bn in 2018 from 2017's $766m. Impairment charges linked to NPLs remain at a huge 35% of total operating income. Though the institutions performed much better in 2018 than the year before, the bottom line remains under considerable pressure.
Smaller Indian banks are struggling even more to turn things around. Their losses not only deepened, they also tend to have more bad loans on their books. Impairment charges in the 2018 ranking ate up nearly all of the overall pre-tax profits at these banks.
The shock resignation of India's central bank governor, Urjit Patel, in December 2018, only halfway into a three-year term, fanned whispers of government interference threatening the RBI’s independence. The RBI is reportedly under pressure to roll back some of the increased NPL recognition policy, which would reduce credit costs. As it stands, banks that fall foul of the rules around bad loans are subject to the 'prompt corrective action' framework, which allows the central bank to directly restrict lending.
Western European doldrums
European banks operated under a dark cloud of negative sentiment in 2018, which resulted in plunging valuations. Though they made a decent showing in terms of absolute profits, a few high-profile European banks have slid several spots in the Top 1000 ranking.
Within the top 100, movement tends to be relatively small: banks go up or down a couple of notches, but a move of four or more places in a year is much less common.
However, in the top 50 for 2019 the only banks to drop more than three spots are all European. Barclays comes in 25th from 2018’s 18th place, while UniCredit and RBS both drop six spots to 30th and 41st, respectively. Deutsche Bank, which arguably had the most tumultuous 2018, drops five places to 27th – a far cry from the 16th spot it managed in 2015.
Top 25 losses by bank
World Rank | Bank Name | Country | Pre-tax profits $m |
408 | IDBI | India | -3,280 |
293 | Norddeutsche Landesbank (Nord LB) | Germany | -2,364 |
262 | Punjab National Bank | India | -2,221 |
514 | Allahabad Bank | India | -1,320 |
233 | Bank of India | India | -1,252 |
568 | Central Bank of India | India | -1,181 |
540 | Corporation Bank | India | -1,162 |
620 | Indian Overseas Bank | India | -862 |
280 | Novo Banco | Portugal | -851 |
730 | Bank of Maharashtra | India | -742 |
488 | Suruga Bank | Japan | -677 |
805 | United Bank of India | India | -662 |
670 | UCO Bank | India | -622 |
306 | Union Bank of India | India | -569 |
154 | Dexia | Belgium | -528 |
461 | Oriental Bank of Commerce | India | -525 |
405 | IDFC FIRST Bank | India | -464 |
391 | Syndicate Bank | India | -439 |
519 | Banca Carige | Italy | -363 |
864 | Credit Europe Bank | Netherlands | -349 |
469 | Andhra Bank | India | -349 |
69 | Nomura Holdings | Japan | -340 |
151 | Alpha Bank | Greece | -333 |
160 | Banco BPM | Italy | -314 |
189 | Piraeus Bank Group | Greece | -309 |
The credit crunch cast a much longer shadow over the European banking industry, which had a second pronounced dip in 2011 and 2012, courtesy of the eurozone debt crisis. While other regions have bounced back quicker, western Europe lags far behind in many financial ratios. Though ROE is down for nigh on every region, western Europe – with its ROE at 6.71% – is only beaten to the bottom by Japan. This is a marked decline from the optimism-inducing 8.62% recorded in the 2018 Top 1000.
Return on capital (ROC) – which looks at the potential to create value based on capital invested – paints an equally grim picture for western Europe, falling by more than 20% to 7.9%, and hardly improving the investment case for the region's banks.Â
They are also contending with a shrinking asset base. Aside from several emerging markets facing big currency devaluations (the Top 1000 converts local currencies to US dollar), the biggest declines in assets in 2018 were seen in Belgium, Finland and Greece, with Germany, Portugal and Norway not far behind. It is important to note that the dollar had a tremendous surge over the course of 2018, which skewed the figures downward by nearly 5%.
This is an ongoing trend in Europe, where many banks have worked to dispose of non-core assets to create a leaner and more efficient institution. Many US banks went through similar programmes: Citigroup and Bank of America, among others, created big ‘bad banks’ to offload toxic assets of questionable value. Most got this manoeuvre out of the way in the years immediately following the financial crisis, but European banks have struggled to turn the narrative around.
Deutsche Bank announced in June 2019 it would purge a further €50bn of assets from its balance sheet. Most of its trimming efforts are focused on the troubled investment bank, while Deutsche Bank plans to bulk up its transaction banking and private wealth management units. Société Générale also announced a cost-cutting restructuring plan in 2019 to slim down the less profitable parts of its investment bank.
Top Asset Declines by Country
Country | Assets decrease (%) | Total assets 2019 ($m) | Total assets 2018( $m) |
Japan | -2.95 | 13,081,658 | 13,478,895 |
Germany | -6.45 | 4,363,212 | 4,664,186 |
UK | -2.53 | 7,368,502 | 7,559,398 |
Italy | -4.91 | 2,956,141 | 3,108,687 |
Spain | -4.36 | 3,895,006 | 4,072,453 |
Austria | -0.03 | 699,335 | 699,514 |
Russia | -5.17 | 961,179 | 1,013,622 |
Netherlands | -4.34 | 2,534,312 | 2,649,231 |
Australia | -3.68 | 2,941,080 | 3,053,392 |
Norway | -5.03 | 429,503 | 452,274 |
Denmark | -3.25 | 918,549 | 949,387 |
Belgium | -8.80 | 814,078 | 892,593 |
South Africa | -3.53 | 476,034 | 493,461 |
Turkey | -15.65 | 415,126 | 492,142 |
Sweden | -4.98 | 926,600 | 975,122 |
Israel | -4.45 | 425,085 | 444,860 |
Poland | -2.73 | 197,252 | 202,792 |
Colombia | -1.83 | 177,807 | 181,116 |
France | -1.02 | 8,708,871 | 8,798,884 |
Pakistan | -12.44 | 77,598 | 88,619 |
Greece | -7.30 | 286,570 | 309,141 |
Portugal | -5.45 | 289,196 | 305,880 |
Argentina | -19.69 | 70,417 | 87,683 |
Sri Lanka | -2.98 | 36,702 | 37,827 |
Angola | -31.39 | 16,383 | 23,877 |
Finland | -8.08 | 808,609 | 879,735 |
Costa Rica | -6.22 | 27,215 | 29,020 |
Ireland | -3.94 | 272,431 | 283,601 |
Iceland | -3.74 | 31,125 | 32,335 |
Czech Republic | -2.57 | 26,351 | 27,045 |
Slovenia | -1.63 | 24,678 | 25,086 |
Luxembourg | -0.75 | 92,273 | 92,972 |
Belarus | -1.70 | 16,722 | 17,011 |
Peru | -0.40 | 56,620 | 56,849 |
Kazakhstan | -12.51 | 23,319 | 26,654 |
Azerbaijan | -8.82 | 4,867 | 5,338 |
New Zealand | -6.99 | 13,997 | 15,048 |
Slovakia | -5.13 | 4,960 | 5,229 |
Papua New Guinea | -1.24 | 6,840 | 6,926 |
Bermuda | -0.06 | 10,773 | 10,779 |
US consolidation charge?
Pundits have long touted predictions that the financial crisis would spark a round of bank mergers in the US and Europe, where the sector has been relatively fragmented. Aside from several big deals in the immediate wake of the banking crisis, institutions have so far shown little appetite for consolidation. In 2018, the most active regions for mergers and acquisitions (M&A) were Japan, India and Russia, which have all struggled to some degree with profitability and capital efficiency.
Though announced in 2018, the most talked about merger, between US regional banks BB&T (ranked at 81) and SunTrust (at 87), has yet to close. But the multi-billion-dollar deal could shake other mid-level US banks out of their torpor, with US Bancorp (ranked 46th) and Capital One (50th) rumoured to be on the hunt for acquisitions.
Mergers in Asia have largely been limited to Japan, but there are other regions ripe for consolidation. With the Chinese economy stuttering, but strong growth in mid-market banks that fall just outside the top 100, there is room for these to join forces.
Smaller markets are also keen to boost competition through merger incentives to enable local banks to compete with their bigger foreign rivals. Thailand implemented a new tax regime to stimulate bank consolidation in April 2018: the bigger the assets, the bigger the deduction of corporate income tax and expenditures. TMB Bank and TBank have announced their intention to merge, but it remains to be seen whether others will follow suit.
The Foreign Exchange Effect
Bank Name | Country | Actual rank | Rank excluding FX depreciation |
Banco de Galicia | Argentina | 675 | 410 |
Banco Provincia | Argentina | 867 | 604 |
Banco Macro | Argentina | 638 | 389 |
Banco Angolano de Investimentos | Angola | 949 | 721 |
Banco BIC | Angola | 932 | 711 |
Banco de Fomento Angola (BFA) | Angola | 925 | 705 |
Banco de la Nacion Argentina | Argentina | 352 | 209 |
Sekerbank | Turkey | 990 | 872 |
Habib Bank | Pakistan | 737 | 651 |
National Bank of Pakistan | Pakistan | 785 | 701 |
Allied Bank | Pakistan | 968 | 884 |
United Bank | Pakistan | 786 | 703 |
MCB Bank | Pakistan | 781 | 700 |
Tinkoff Bank | Russia | 814 | 738 |
Sovcombank | Russia | 542 | 469 |
Russian Regional Development Bank | Russia | 690 | 617 |
Russian Standard Bank | Russia | 961 | 891 |
Bank Saint Petersburg | Russia | 732 | 664 |
Ak Bars Bank | Russia | 755 | 688 |
Akbank | Turkey | 179 | 130 |
Credit Bank of Moscow | Russia | 379 | 333 |
VakifBank | Turkey | 205 | 162 |
Turkiye Halk Bankasi | Turkey | 224 | 187 |
Russian Agricultural Bank | Russia | 248 | 212 |
Turkiye Is Bankasi | Turkey | 147 | 112 |
Otkritie Financial Corporation Bank | Russia | 317 | 284 |
TC Ziraat Bankasi | Turkey | 130 | 101 |
Gazprombank | Russia | 171 | 145 |
VTB Bank | Russia | 85 | 68 |
Sberbank | Russia | 32 | 26 |
Europe's M&A inertia
Europe has been conspicuously absent from the bank M&A scene for a long time, however. Only in Spain and Italy, notoriously fragmented markets containing numerous small, struggling lenders, has there been any activity of note.
After many years of flirting with the idea of a merger between German stalwarts Deutsche Bank and Commerzbank, there actually seemed to be a convergence of minds for a hot minute. But no sooner did the troubled banks sit down than conversations fell apart over the necessity of scrapping upwards of 30,000 jobs. Rumours of foreign banks such as UniCredit, BNP Paribas or ING swooping in to pick up Commerzbank then swirled instead, but the European Commission and the ECB have shown little enthusiasm for cross-border bank mergers.
The dubious track record for such deals, including RBS’s disastrous match with Dutch ABN Amro or France’s BNP Paribas snapping up beleaguered Belgian bank Fortis, goes a long way to explaining the reluctance to do this type of deal in the absence of truly imminent collapse. Â
One notable exception is UK challenger bank CYBG’s £1.7bn ($2.17bn) takeover of Virgin Money. Challenger banks are by their very nature smaller and newer to the UK retail banking scene than the more established banking brands, and this tie-up signals that CYBG is ready to step up its competition. Several new online-only banks have been snapping up smaller companies in the banking and payments sector, so it would be wise to watch this space.
Top 10 Declines in Deposit Funding
Bank Name | Country | change yoy (basis points) | Deposits ( % total liabilities) |
Suruga Bank | Japan | -2586 | 99.17 |
Dexia | Belgium | -2404 | 4.78 |
Getin Noble Bank | Poland | -2193 | 90.79 |
Bank of Tangshan | China | -2176 | 73.76 |
Unipol Banca | Italy | -2117 | 80.27 |
Schroders | UK | -1858 | 20.33 |
Sumitomo Mitsui Trust Bank | Japan | -1823 | 58.76 |
Bank of Tianjin | China | -1770 | 61.58 |
Alawwal Bank | Saudi Arabia | -1752 | 95.21 |
Wuhan Rural Commercial Bank | China | -1718 | 82.40 |
Peripheral Europe on the rise
It is not all doom and gloom in Europe, however. CEE is the only region to increase ROE in the 2019 ranking, going up nearly three percentage points to 15.31%. In the 2018 ranking, CEE banks accounted for just under 20% of the top 25 losses by bank, but the 2019 list features none from the region.
France continues to be a big driver of European pre-tax profits, but has become less dominant over the years. In the 2012 ranking, based on financials from the eurozone debt crisis in 2011, French banks accounted for 75.1% of total pre-tax profit in Europe. The next year, when overall pre-tax profits in Europe shrunk to a miniscule $11.87bn (compared with 2019’s $225.7bn), France contributed a whopping 196.59% share of the profits.
The UK has always been a big contributor to European profits, particularly in times of market turbulence, as reflected in the 2009, 2012 and 2013 rankings. Concerns about the UK’s exit from the EU have not had a negative effect on the domestic banking sector, which cranked up pre-tax profits in 2018 by $6.5bn to a respectable $43.5bn.
Throughout the eurozone crisis, peripheral European countries posted huge losses. Spain accounted for an eye-watering -610.22% of the overall pre-tax profits for Europe in the 2013 ranking. It has undergone a tremendous profit turnaround since then, contributing a healthy 14.94% to total European profits in the 2019 Top 1000 ranking. Spain is home to what were some of the best-in-class banks in terms of profit growth over 2018, with stand-out performances from Banco Santander, BBVA, Caixabank and Liberbank, which features on the biggest turnarounds list.
Top 1000 Banks Universe Evolution (number of banks)
World Region | 2019-2018 | 2019-2014 | 2019-2009 |
Africa | 1 | 2 | 0 |
Central and Eastern Europe | 0 | -14 | -16 |
Europe | 1 | -14 | -92 |
Middle East | -3 | -10 | -3 |
North America | 8 | 20 | 9 |
Asia-pacific (excl CHINA /Japan), including Central Asia | -3 | 8 | 26 |
China | 1 | 26 | 84 |
Japan | -2 | -4 | -10 |
Latin America and Caribbean | -3 | -14 | 2 |
Out with NPLs
As well as Spain, other post-crisis problem countries Portugal, Greece, Italy and Cyprus are on the cusp of a banking industry renaissance. Indeed, they performed better than many of the more mature core European economies. The two Cypriot banks in the 2019 Top 1000 ranking staged a remarkable comeback, improving ROE by 254 basis points (bps) to 0.57%, from -1.97%. Cyprus’s Hellenic Bank is one of the top 10 biggest movers from loss to profit in the country, taking pre-tax profit from a $58m loss in 2017 to $367m in the black in 2018. Portugal, with a presence of five banks in the Top 1000, posted an ROE of -0.13%, which is still a vast improvement on the -0.35% of the 2018 ranking.
Italian and Portuguese banks continued their aggressive NPL disposal programmes, bringing down their overall portfolios by 237bps and 274bps, respectively. Italy’s top five banks in the Top 1000 all brought the percentage of NPLs on their balance sheets to below 10%, which is widely considered to be a normalised level. Beleaguered lender Banca Monte dei Paschi in a tour de force halved its NPL ratio to 8.24% at the end of 2018. Even Banca Carige, which has been teetering on the edge of collapse for several years, strongly improved its ROE to 16.72% from -24.42% at the end of 2017.
Portugal had a fantastic year, making great strides in profit growth, despite the overall trend of flat-ish profits among the Top 1000 banks. Even without discounting troubled bank Novo Banco, which put up a valiant effort of reducing losses, the overall growth from -$105m pre-tax profits in 2017 to more than $1bn in 2018 deserves plaudits.
In Greece, still one of the eurozone’s weakest economies, there are encouraging signs the frost in the banking sector is thawing. One of its leading lenders, Piraeus Bank, announced the official completion of it 2015-18 restructuring plan in June 2019 and dramatically reduced losses in the financial year 2018 to -$309m from a trench of -$1.689bn at the end of 2017. Attica Bank pulled off a big turnaround, shrinking losses from $1.8bn to a more manageable $465m in 2018.
Ten Most Profitable Foreign Networks
Parent Bank | Number of FOS in Top 1000 | USD Pre-Tax Profits ($m) | Pre -tax profits of Bank Holding Company ($m) |
HSBC Holdings | 18 | 25,048 | 19,890 |
Banco Santander | 12 | 12,199 | 16,323 |
Banco Bilbao Vizcaya Argentaria | 6 | 7,558 | 9,708 |
BNP Paribas | 10 | 7,054 | 11,733 |
Bank of China | 2 | 5,266 | 33,525 |
Citigroup | 8 | 4,456 | 23,437 |
ING Group | 5 | 4,194 | 7,760 |
Unicredit | 10 | 4,192 | 4,145 |
Toronto Dominion Bank | 1 | 3,784 | 11,081 |
Standard Chartered | 11 | 3,393 | 2,548 |
Currency pinball
Unexpectedly, perhaps, 2018 was the year of the strong US dollar. Erasing its abysmal performance in 2017, the greenback surged against major currencies. Because The Banker converts all of the Top 1000 figures into US dollars, this has a negative effect to varying degrees on banks that report in other currencies in the ranking. Several countries saw their currencies plummet heavily in 2018, affecting their banks' place in the Top 1000.
(Please note that The Banker excluded Venezuelan banks for the second consecutive year going as hyper-inflation continued to severely distort their bottom lines.)
The currency depreciation list is topped by three Argentinian banks. Banco de Galicia, Banco Provincia and Banco Macro saw between 249 to 265 places shaved off their rankings because of currency devaluation alone. The Argentinian peso crashed in 2018, losing 50% of its value against the dollar. Rampant inflation of about 48% further pushed the already battered economy to the brink. To combat the further spiralling of inflation, the Argentinian central bank has set an ultra-tight monetary policy, with interest rates at a mammoth 60%.
The Turkish lira is the second most vulnerable emerging market currency, having lost one-third of its value against the dollar in 2018. Turkey had to contend with a series of setbacks in this time, including political instability, currency sell-offs and rising inflation. Meanwhile, Russian banks are the most frequent flyers on the top 25 currency devaluation list, as a weak ruble and economic sanctions continue to make life difficult.
Top 25 Profits For Foreign-Owned Subsidiaries
Rank | Bank Name | Country | USD Pre-Tax Profits ($m) | Parent Bank | Parent Bank Country |
1 | HSBC | Hong Kong | 17,188 | HSBC Holdings | UK |
2 | Bank of China Hong Kong | Hong Kong | 4,979 | Bank of China | China |
3 | Banco Santander Brasil | Brazil | 4,111 | Banco Santander | Spain |
4 | TD Bank US Holding Company | US | 3,784 | Toronto Dominion Bank | Canada |
5 | Grupo Financiero BBVA Bancomer | Mexico | 3,703 | Banco Bilbao Vizcaya Argentaria | Spain |
6 | Hang Seng Bank | Hong Kong | 3,631 | HSBC Holdings | UK |
7 | BNP Paribas Fortis | Belgium | 3,480 | BNP Paribas | France |
8 | Santander UK | UK | 1,984 | Banco Santander | Spain |
9 | UBS Americas Holdings | US | 1,821 | UBS | Switzerland |
10 | Grupo Financiero Citibanamex | Mexico | 1,806 | Citigroup | US |
11 | ANZ Bank New Zealand | New Zealand | 1,791 | ANZ Banking Group | Australia |
12 | Turkiye Garanti Bankasi | Turkey | 1,671 | Banco Bilbao Vizcaya Argentaria | Spain |
13 | ING DiBa | Germany | 1,520 | ING Group | Netherlands |
14 | Standard Chartered Bank Hong Kong | Hong Kong | 1,438 | Standard Chartered | UK |
15 | Santander Holdings USA | US | 1,417 | Banco Santander | Spain |
16 | BNP Paribas USA | US | 1,411 | BNP Paribas | France |
17 | ING Bank Belgium | Belgium | 1,353 | ING Group | Netherlands |
18 | ICBC Asia | Hong Kong | 1,327 | Industrial and Commercial Bank of China | China |
19 | BMO Financial Corp | US | 1,190 | Bank of Montreal | Canada |
20 | Yapi Kredi Bankasi | Turkey | 1,148 | Unicredit | Italy |
21 | ASB Bank | New Zealand | 1,103 | Commonwealth Bank Group | Australia |
22 | MUFG America Holdings Corporation | US | 1,101 | Mitsubishi UFJ Financial Group | Japan |
23 | Banco Santander Chile | Chile | 1,096 | Banco Santander | Spain |
24 | RBC USA Holdco Corporation | US | 1,093 | Royal Bank of Canada | Canada |
25 | Santander Bank Polska | Poland | 1,035 | Banco Santander | Spain |
Resurgent frontier markets
Economic growth in sub-Saharan Africa slowed to 2.3% in 2018 against an average of 3.3% over the past five years. Low oil production and currency woes have hurt the economies of Nigeria and Angola, while South Africa’s economy and the rand are on shaky ground.
It is all the more remarkable in this context that Angola enjoyed an outstanding year in 2018, despite the fact that its three Top 1000 banks occupy places four to six on the list of banks most affected by foreign exchange changes. Their combined assets shrunk, in part explained by foreign exchange swings, by 31.39% in the 2019 ranking, but the banks scored very well in terms of profitability. Their ROE increased by 1105bps to 34.67% in the 2018 ranking, from 23.62% in the 2018 list, and the banks posted a huge return on capital of 50.47%. An overall ROA of 5.45%Â puts Angola at the front of the Top 1000 pack in Africa.
The four Kenyan banks in the ranking also put their best feet forward, growing assets by nearly 10% and ROE by 115bps. Kenya did not have a presence in the Top 1000 ranking until 2012, but posted the second best ROA in Africa of 3.06% over 2018.
In south-east Asia, Vietnam is one of the better performers. Its 14 lenders in the Top 1000 posted the biggest year-on-year boost in pre-tax profits in Asia-Pacific (excluding China and Japan). Their combined 30.99% growth is nearly double that of the nearest rival, Singapore, with 15.15% pre-tax profit growth. This is not a singular occurrence either: Vietnam’s pre-tax profit growth CAGR stands at a hefty 31.2% between the 2009 and 2019 rankings. Â
It is no coincidence that Japanese mega-banks Mitsubishi UFJ Financial Group (MUFG), Mizuho and Sumitomo, which have contended with years of negative domestic interest rates and a slowing economy, are looking to south-east Asia to boost profits. Thailand, Malaysia and Indonesia have been popular destinations for foreign-owned subsidiaries of Japanese banks. Though these foreign branches are only tiny parts of their behemoth parent banks, they provide much-needed earnings growth. For instance, MUFG’s Indonesian operations clocked an ROE of 21.65% in 2018, far above the 2019 Top 1000 Japanese banks' ROE of 4.03%.
Mergers and Acquisitions in Top 1000
Bank | Country | Tier 1 capital ($m) | Buyer (country) | Notes |
B&N Bank | Russia | 1,178 | Otkritie Financial Corporation Bank (Russia) | Tier 1 capital at end 2017 |
Vozrozhdenie Bank (Bank holding) | Russia | 453 | Vozrozhdenie Bank (Russia) | Tier 1 capital at end 2017 |
Virgin Money Group | UK | 2,227 | CYBG (UK) | Tier 1 capital at end 2017 |
Raiffeisen Bank Poland | Poland | 1,760 | BNP Paribas (France) | Tier 1 capital at end 2017 |
BBVA Chile | Chile | 1,465 | Scotiabank Chile (Chile) | Tier 1 capital at end 2017 |
Hamamatsu Shinkin Bank / Iwata Shinkin Bank | Japan | 1,104 | Â | Tier 1 capital at march 2017 for Hamamatsu Shinki Bank. Hamamatsu Shinkin Bank and Iwata Shinkin Bank merged to create Hamamatsu Iwata Shinkin Bank |
Grupo Financiero Interacciones | Mexico | 730 | Grupo Financiero Banorte (Mexico) | Tier 1 capital at end 2017 |
Dena Bank | India | 987 | Bank of Baroda (India) | Tier 1 capital at March 2017 |
Vijaya Bank | India | 1,764 | Bank of Baroda (India) | Tier 1 capital at March 2017 |
Bank of America Merrill Lynch International | UK | 8,503 | Bank of America Merrill Lynch International (UK) | Bank of America Merrill Lynch International Limited merged into Bank of America Merrill Lynch International D.A.C. on Dec 1, 2018 (Dublin) |
Eighteenth Bank | Japan | 1,313 | Fukuoka Financial Group (Japan) | Tier 1 capital at March 2018 |
Daishi Bank/Hokuetsu Bank | Japan | 2,568/942 | Â | Daishi Bank and Hokuetsu Bank merged to create Daishi Hokuetsu Financial Group |
Daisan Bank/Mie Bank | Japan | 883 / 937 |  | Daisan Bank and Mie Bank merged to create San ju San Financial Group |