The results of this year’s Top 1000 ranking of world banks must be regarded as the calm before the storm. The good news of 2020 – the 50th anniversary of the ranking – is that the global banking industry is broadly in good shape. But as Covid-19 takes its toll on economies everywhere, banks will come under pressure and next year’s results will reflect these stresses.
At least this time – unlike 10 years ago when the financial crisis hit – global banking is well capitalised. With aggregate Tier 1 capital standing at $8,796bn, a 6% increase on last year, this is the largest amount ever, and 80% higher than a decade ago.
In 1970, when the ranking began, the upper echelons were the sole preserve of US banks. Today, the big US banks are still there but they have been joined by the leading Chinese banks, and indeed overtaken on some measures.
This year saw the big four Chinese banks – ICBC, China Construction Bank, Agricultural Bank of China and Bank of China – significantly increase their capital strength vis à vis the big four US banks – JPMorgan Chase, Bank of America, Wells Fargo and Citigroup – making them 72% larger in capital terms.
But as we point out in this month’s cover story (see page 99), US banks look better in terms of efficiency. Whereas Chinese banks in total make 29% of global profits, employing 25% of global assets, US banks make 22% of profits using only 14% of assets.
With the toll of Covid-19 ahead, there are continuing worries about western Europe’s banks, which have never fully recovered from the financial crisis. While three previously troubled countries – Italy, Greece and Portugal – are making profits, overall pre-tax profits dropped by 10%.
The interesting question is how things will look not only in next year’s ranking but in 10, 20 and even 50 years’ time. Over half a century the global banking system has changed considerably. Japanese banks dominated the ranking in 1990 but then fell back. Chinese banks that are on top today will not automatically stay there.
Whatever the outcome, The Banker’s research team plans to carry on crunching the data and delivering the results for another 50 years.
