The current economic crisis has seen widespread change at the top table of global banking.
China's giant banks storm top 10
"Many of China's major banks made big profits last year, hundreds of billions of yuan each. But most of them are state-owned big banks, said Dr Miao Rong from the research department of the China Enterprise Confederation. "They have unique status. Of course there are also many commercial banks that did very well last year. But state-owned banks are in a monopoly position, enjoying inadequate competition. Their network, platform and political background are different."
According to Reuters, as of July this year, Industrial & Commercial Bank of China (ICBC) is the world's biggest with a market capitalisation of US$254.8 billion (Dh935.75bn). It is followed by China Construction Bank (CCB) with $174.5bn and Bank of China (BOC) with $154.8bn. Citigroup, which used to be the biggest bank in the world, is no longer in the top 10. ICBC made $21.3bn in pre-tax profit last year, a rise of 34.6 per cent on the previous year and the largest profit recorded by any bank in the world in 2008. ICBC had 16,000 outlets nationwide and 143 branches overseas as of June 30. It is expanding aggressively internationally and has spent more than $6bn on acquisitions in the past two years in places such as Indonesia, the Chinese territory of Macau, South Africa and Canada.
CCB was the first among the "Big Four" to get listed in Hong Kong in October 2005, and was followed by BOC in June 2006.
If China hits 8 per cent growth this year, as widely expected, and as long as the fiscal stimulus money keeps coming, the banks are set to continue growing for the foreseeable future, certainly for the remainder of this year.
While the transformation of China's banks has been remarkable, they have had a lot of help and there are lingering worries that they may still have a problem in the future with non-performing loans. A decision by the Beijing government to underwrite continued economic growth and lay foundations for acceleration in the economy with a massive rise in new bank lending has been a serious boon for the country's banks, most of which ended the year with record profits and more capital than ever before. In the first half of this year, Chinese banks gave out a record 7.37 trillion yuan (Dh3.96tn), while lending by foreign banks in China fell by 32.7bn yuan because the outside institutions simply cannot compete with Chinese banks when it comes to funding infrastructure projects. State-controlled banks, which are the main lenders to the government's 4tn yuan stimulus package, issued 3.26tn yuan in new loans in the first half of this year, which accounts for nearly half of the nation's entire lending in the period.
Also, foreign banks are reducing their investments overseas. All of this means many of the foreign banks will see a decline in China-based income this year after almost three years of rapid expansion in China, following deregulation of the industry in December 2006.
The main driving force is China's economic development. "The profits of small and medium banks also rose last year. China's economic fundamentals are good," said Dr Miao.
US banks suffered the impact of the financial crisis more severely than Chinese banks with some big-name investment banks closing. But this year's data show the development of Chinese banks is still very healthy in general, he added.
China's banking industry is growing in a stable and normal way and the disaster that hit the global financial sector just made the Chinese industry look better by comparison. Although their performances are strong, there are nagging fears about the long-term impact of such a huge and speedy increase in new lending at a time of global recession, and with Chinese industry struggling to counteract the ill effects of a devastated export market. The spectre is looming of future accumulation of non-performing loans (NPLs) in the banks in China and the ratings agencies have forecast an increase in NPLs and bad debt write-offs, although not immediately.
"During this first half, a large number of loans banks provided also brought risk," said Dr Miao. "However, since they are state-owned banks, they mainly provided loans to state-owned enterprises, to local government for infrastructure building as well as some good-quality private enterprises. "So they won't suffer bad debts in the way that western banks did," he added. "Even if there are bad debts, the Chinese banks can digest it within the system. They are all state-owned members, like a 'family'.
This system is conducive to the development of large enterprises," Dr Miao said. But many small and medium private enterprises did not benefit from this opportunity, one of the regrets from China's economic stimulus plan in the first half. So if you want to see how much the financial crisis has impacted China's economy, we still need to wait for 2009 economic data.