World’s Top Banks Weather Pandemic Storm
The world’s largest banks have withstood the pressures from the Covid-19 pandemic, adding 12.7% to their collective Tier 1 capital to reach the highest ever level of $9.9 trillion, according to The Banker’s latest ranking of the Top 1000 World Banks.
In addition, total assets increased by 16.0%, to $148.6 trillion, while the deposit base expanded by 17.1%, to $93.9 trillion.
Compared to the global financial crisis in 2007-09 there is more resilience in the banking sector. Overall, the Top 1000 World Banks increased the allowance for loan losses (or the reserve to cover bad debts) by 25.8%, to $1.7 trillion, which is a bigger increase than the aggregate loan book, which grew by 11.4%.
However, as many jurisdictions have extended their Covid-19 support packages into 2021, the true impact of the pandemic has not hit the banks’ loan books yet.
Despite challenging economic conditions, banks have been able to generate pre-tax profits (see table: Top 10 Countries’ profit change). However, most countries recorded a reduction in pre-tax profits, with just 16 countries increasing aggregate profits.
While the Top 1000’s combined profits dropped by 19.2% year-on-year, it is not as catastrophic when compared to the fallout from the financial crisis, when profits plummeted 85.3% in 2009.
China continues to be the engine of growth for the world’s banking industry, increasing aggregate Tier 1 capital and total assets by 18.6% and 18.4%, respectively. China, with 144 banks in the ranking, now holds almost double the amount of Tier 1 capital ($2.96 trillion) than the US ($1.58 trillion), with 178 banks in the ranking.
The four largest Chinese banks – Industrial and Commercial Bank of China, China Construction Bank, Agricultural Bank of China and Bank of China – have consolidated their positions at the top of the ranking, and have extended their lead over US counterparts (JPMorgan Chase, Bank of America, Citigroup and Wells Fargo) with double-digit growth in Tier 1 capital (see table: Top 20 World Banks 2021).
Overall Chinese banks increased their aggregate Tier 1 capital by 18.6%, against 8.5% for US banks. In addition, profits continued to grow in China by 5.2% year-on-year, while falling by 31.5% in the US and 41.8% in Western Europe.
Joy Macknight, editor of The Banker, said: “During a challenging year for the world’s banking industry, the top Chinese banks have extended their lead over US counterparts with double-digit increases in Tier 1 capital, as well as expanding their asset base and increasing profits. The global banking industry overall has exhibited impressive resilience in such a difficult time.”
However, Western Europe had another difficult year – due to low economic growth and the interest rate environment hitting the profitability of the region’s biggest lenders. Of the largest European economies, banks’ aggregate pre-tax profits shrank by 43.71% in Germany, 75.72% in Italy and 47.67% in Netherlands, while France experienced a more modest decline of 11.61%.
Spain recorded negative pre-tax profits at an aggregate level, with two of its largest banks, Banco Santander and Bankia, moving from profit to loss in this period (see table: Ten largest moves from profit to loss).
The Asia-Pacific region generated more than half (55.1%) of the world’s profits, based on net income data, up from 43.5% in the 2020 ranking, and was the only region to increase its share of profits.
