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Financials
Prudence pays for Asian banks
To say that the previous year has been challenging for the financial sector is an understatement
Excessive leveraging by some banks in the US and Europe, bad lending policies to people who couldn’t repay their debts and an estimated $1 trillion invested in a variety of derivative instruments have all rattled the financial sector and caused a global downturn that’s seeped into Asia. Singapore (where financial services constitute about 12% of GDP), Japan and Hong Kong all fell in to recession.
The poor global environment clearly sets challenges for Asian banks. These include a tightening of credit, an economic slowdown, inflation and high prices for oil and food, but there is also a sense of having been here before. For Asian banks memories of tough times are reminiscent of the Asian financial crisis a decade ago. Fortunately prudent policies implemented at its conclusion and conservative cultural norms are said to be some of the reasons why Asian banks today are on a better footing that many of their Western counterparts. Certainly their importance and standing is represented by the fact they make up 25% of the FA100 list.
HSBC, which held onto its number two spot from 2007 is credited with an early reaction to the US subprime crisis, following the trading statement it issued to investors warning of the impact of bad debt last February. Two months later HSBC was looking to its future development and the importance of China when it incorporated its business there. By the end of this year it was operating 53 outlets up from 39 and it became the first foreign bank to receive permission to open a branch in rural China. HSBC also took steps to tackle another global problem that some see as potentally as important as the world credit crunch – climate change. In May the bank announced the Climate Partnership, a five-year, $100m project that aims to tackle the causes and affects of climate change.
Chinese heavyweights the Industrial and Commercial Bank of China (ICBC), China Construction Bank and Bank of China all retained top 10 spots in the FA100 and few are in any doubt that these banks are major players on the world stage.
While there is dislocation in many parts of the world, in June Reuters reported that Moody’s Investors Service predicted a stable 18-month outlook for the banking industry in China, Hong Kong and Taiwan.
“Asia’s sub-prime exposures have been small and the exceptionally strong levels of earnings recorded for 2007 have kept losses well contained,” said Deborah Schuler, senior vice president of Moody’s Asian Financial Institutions. In the interview Schuler pointed to the impressive growth of Asian economies, the limited involvement of Asian banks in global capital markets and their generally healthy financial conditions as cheering facts for the future health of the sector.
Certainly ICBC’s figures were strong. During the first three quarters of the year, the bank maintained steady growth in all its businesses, and profit after tax for the first nine months increased more than 45% compared to the previous year.
In October ICBC became the first Chinese bank to establish a wholly-owned subsidiary bank in the Middle East when it set up shop at the Dubai International Financial Center. By offering a full range of banking services ICBC is looking to capitalise on the expanding bilateral trade between China and the United Arab Emirates that last year totalled more than $20 billion, an increase of 41% compared to 2006 levels.
Despite the fact that Korea was hit by slower economic growth and less liquidity this year, Moody’s still predicts a stable outlook for the country’s bank ratings. Korea, which had the second largest number of banks in the FA100 list, benefitted from the depreciation of the won which made exports more competitive, particularly against their more expensive Japanese neighbours.
The peaks and troughs of the financial crisis has proved that making predictions is a challenge and the contradictory forecasts offered for the Indian economy in the year ahead proves the point. India’s fabulous recent growth has been predominantly domestic-led leading some commentators to forecast that it should be able to sustain these patterns. Others are not so sure. Goldman Sachs, for example revised growth rates down in November believing that India will be harder hit by world economic events than previously thought.
Still, India has proved itself one of the world’s fastest growing emerging economies and has posted annual GDP growth of more than 9% since 2006. CLSA is bullish about FA100 winner ICICI Bank’s local outlook, despite the fact that 2009 is likely to be a tough year for the established players when the government opens up the financial sector. In 2008 ICICI bought Sangli Bank and almost doubled its branch network in a year giving it the largest network among private banks.
The future demand for infrastructure projects prompted the State Bank of India to create a separate business unit to focus on funding major initiatives. These projects are likely to enjoy added impetus as the government’s 11th plan for 2008-2012 specifically targets the power sector, road construction, sea ports and telecommunications. CLSA predicts the State Bank of India is likely to be one of the main beneficiaries of corporate credit demand due to its large balance sheet and established corporate relationships.
The wait and see attitude means that few can predict how the global economic woes are going to impact tier two Asian banks. Nonetheless there’s cheer in the fact that recovery is projected to make itself apparent towards the end of 2009. Asian banks, with their sensible lending patterns and growing domestic economies should be better placed than their Western neighbours to take advantage of that and wow the world again with spiralling growth.
| Ranking by revenue |
| Country |
Company |
(million $) |
| HK |
HSBC |
75,003 |
| CH |
Industrial & Commercial Bank of China |
33,669 |
| CH |
China Construction Bank |
29,026 |
| CH |
Bank of China |
24,028 |
| SK |
Woori Financial |
14,114 |
| SK |
Shinhan Financial |
9,038 |
| CH |
Bank of Communications |
8,257 |
| CH |
China Merchants Bank |
5,398 |
| IN |
State Bank of India |
4,981 |
| SK |
Korea Exchange Bank |
4,740 |
| SG |
DBS |
4,092 |
| SK |
Hana Financial |
3,914 |
| SK |
Industrial Bank of Korea |
3,784 |
| CH |
China CITIC Bank |
3,676 |
| HK |
Bank of China (Hong Kong) |
3,493 |
| SG |
United Overseas Bank |
3,235 |
| HK |
Hang Seng Bank |
3,206 |
| IN |
ICICI Bank |
2,794 |
| SG |
OCBC |
2,781 |
| ML |
Malayan Bank |
2,492 |
| TW |
Mega Financial |
1,410 |
| SK |
Kookmin Bank (KB Financial) |
N/A |
| TW |
Cathay Financial |
N/A |
| CH |
China Life Insurance |
N/A |
| CH |
Ping An Insurance |
N/A |
| |
| Ranking by revenue growth |
| Country |
Company |
|
| CH |
China Merchants Bank |
65.10% |
| CH |
China CITIC Bank |
55.90% |
| CH |
China Construction Bank |
45.60% |
| CH |
Bank of Communications |
43.20% |
| CH |
Industrial & Commercial Bank of China |
41.00% |
| SK |
Shinhan Financial |
40.60% |
| HK |
Hang Seng Bank |
38.30% |
| IN |
ICICI Bank |
36.60% |
| SK |
Woori Financial |
31.20% |
| SG |
OCBC |
29.30% |
| HK |
Bank of China (Hong Kong) |
27.90% |
| SK |
Industrial Bank of Korea |
25.00% |
| CH |
Bank of China |
23.10% |
| SK |
Hana Financial |
17.50% |
| SG |
United Overseas Bank |
15.30% |
| SG |
DBS |
15.30% |
| SK |
Korea Exchange Bank |
15.30% |
| ML |
Malayan Bank |
9.50% |
| HK |
HSBC |
5.90% |
| TW |
Mega Financial |
-0.90% |
| IN |
State Bank of India |
-2.40% |
| SK |
Kookmin Bank (KB Financial) |
N/A |
| TW |
Cathay Financial |
N/A |
| CH |
China Life Insurance |
N/A |
| CH |
Ping An Insurance |
N/A |
| |
| Ranking by net profit |
| Country |
Company |
|
| TW |
Cathay Financial |
190.70% |
| CH |
Ping An Insurance |
138.40% |
| CH |
China Merchants Bank |
124.40% |
| CH |
China CITIC Bank |
115.70% |
| CH |
China Life Insurance |
94.80% |
| CH |
Industrial & Commercial Bank of China |
65.50% |
| CH |
Bank of Communications |
65.20% |
| CH |
China Construction Bank |
49.10% |
| HK |
Hang Seng Bank |
44.20% |
| CH |
Bank of China |
31.30% |
| SK |
Shinhan Financial |
30.80% |
| SG |
OCBC |
30.20% |
| SK |
Hana Financial |
26.60% |
| HK |
Bank of China (Hong Kong) |
22.90% |
| IN |
ICICI Bank |
22.40% |
| TW |
Mega Financial |
17.30% |
| SG |
DBS |
14.70% |
| ML |
Malayan Bank |
14.60% |
| SG |
United Overseas Bank |
11.90% |
| SK |
Industrial Bank of Korea |
10.90% |
| IN |
State Bank of India |
3.10% |
| SK |
Woori Financial |
0.60% |
| SK |
Korea Exchange Bank |
-4.50% |
| HK |
HSBC |
-18.30% |
| SK |
Kookmin Bank (KB Financial) |
N/A |
| |
| Ranking by ROE |
| Country |
Company |
|
| HK |
Hang Seng Bank |
35.30% |
| CH |
China Merchants Bank |
24.80% |
| CH |
Ping An Insurance |
23.60% |
| CH |
China Life Insurance |
22.50% |
| SK |
Shinhan Financial |
19.80% |
| SK |
Industrial Bank of Korea |
19.40% |
| CH |
China Construction Bank |
18.40% |
| CH |
Bank of Communications |
18.20% |
| ML |
Malayan Bank |
17.60% |
| HK |
Bank of China (Hong Kong) |
17.40% |
| CH |
Industrial & Commercial Bank of China |
16.20% |
| SK |
Woori Financial |
16.20% |
| HK |
HSBC |
15.90% |
| TW |
Cathay Financial |
15.50% |
| IN |
State Bank of India |
15.40% |
| SK |
Hana Financial |
14.80% |
| SK |
Korea Exchange Bank |
14.70% |
| CH |
China CITIC Bank |
14.40% |
| CH |
Bank of China |
14.00% |
| SG |
OCBC |
13.50% |
| IN |
ICICI Bank |
13.40% |
| SG |
United Overseas Bank |
13.00% |
| SG |
DBS |
12.90% |
| TW |
Mega Financial |
9.50% |
| SK |
Kookmin Bank (KB Financial) |
N/A |
| |
|
|
| Share price |
| Country |
Company |
Share price, Nov 1, 2007 |
share price, Nov 1 2008 |
currency |
| CH |
Bank of China |
5.2 |
2.2 |
HKD |
| HK |
Bank of China (Hong Kong) |
22.7 |
8.6 |
HKD |
| CH |
Bank of Communications |
13.5 |
4.4 |
HKD |
| TW |
Cathay Financial |
79.6 |
35.3 |
TWD |
| CH |
China CITIC Bank |
6.5 |
2.3 |
HKD |
| CH |
China Construction Bank |
8.6 |
3.7 |
HKD |
| CH |
China Life Insurance |
51.9 |
20.4 |
HKD |
| CH |
China Merchants Bank |
39.1 |
11.5 |
HKD |
| SG |
DBS |
22.6 |
11 |
SGD |
| SK |
Hana Financial |
45,300.00 |
20,000.00 |
KRW |
| HK |
Hang Seng Bank |
153.7 |
95 |
HKD |
| HK |
HSBC |
152 |
92 |
HKD |
| CH |
Industrial & Commercial Bank of China |
7.1 |
3.5 |
HKD |
| SK |
Industrial Bank of Korea |
17,350.00 |
7,230.00 |
KRW |
| IN |
ICICI Bank |
1,298.90 |
399.4 |
INR |
| SK |
Kookmin Bank (KB Financial) |
N/A |
N/A |
KRW |
| SK |
Korea Exchange Bank |
14,650.00 |
7,030.00 |
KRW |
| ML |
Malayan Bank |
9 |
5.4 |
MYR |
| TW |
Mega Financial |
21 |
9.2 |
TWD |
| SG |
OCBC |
9 |
4.9 |
SGD |
| CH |
Ping An Insurance |
107.4 |
32 |
HKD |
| SK |
Shinhan Financial |
58,500.00 |
31,300.00 |
KRW |
| IN |
State Bank of India |
1,953.90 |
1,109.50 |
INR |
| SG |
United Overseas Bank |
21.2 |
13 |
SGD |
| SK |
Woori Financial |
18,750.00 |
6,730.00 |
KRW |
|
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