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China and India at top and bottom in banking

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China’s top four banks are also the world’s top four banks, as measured by Tier 1 capital in The Banker’s 2018 Top 1000 ranking. In comparison, the highest placed Indian bank is State Bank of India, languishing at number 56.

The world’s top three most profitable banks are all Chinese. First comes ICBC with $56bn in pre-tax earnings, followed by China Construction Bank with $46bn and Agricultural Bank of China with $37bn. Only then does a US bank appear – JP Morgan with $36bn in profits.

But in a top 10 of banks making the largest losses, six are Indian. Punjab National Bank lost $3bn (the third largest global loss), IDBI lost $1.9bn (the fourth largest) and State Bank of India $1.8bn, the fifth largest.

At a country level, China’s banks made $321bn in 2017, which is 10% up on 2016 and represents nearly 29% of global profits. India’s banks on the other hand lost $9bn, accounting for 79% of total Top 1000 losses. China’s banks grew their Tier 1 capital by 20%, or $336bn, in 2017.  This is just slightly more than the Tier 1 capital of ICBC, which is both China’s and the world’s largest bank and which, in turn, grew its capital by $43bn, the equivalent of adding a Standard Chartered or a UBS.

In comparison, India’s $154bn total Tier 1 capital is about 7.5% of China’s total and only grew by 6% in 2017. China’s economy is four-and-a-half times larger than India’s but even so, India’s banking sector is underperforming and is far from realising its full potential.

But at least the reasons for India’s problems are positive, in the sense that the central bank is forcing banks to recognise their bad loans and work them out. This bodes well for the future.

China’s economy faces many problems of its own such as high indebtedness, a frothy property market and a shadow financial sector. The good news is that Chinese banking assets grew at only 15%, so less than the 20% uptick in capital, hence making the system safer. Yet oversized banking sectors can cause problems as we saw in the financial crisis. Maybe both countries should be looking at each other to learn some lessons.

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