As The Banker's Top 1000 World Banks ranking looks forward to celebrating its 50th anniversary in our July 2020 issue, a look back at its growth from an original list of just 300 shows how far the banking industry has come.
Editor Brian Caplen tracks the major trends that have shaped the current landscape.
When The Banker launched its first ranking of banks in 1970, the top 10 by assets was dominated by US banks (seven in total) with just a few European banks. Starting out with a list of 300 banks, the magazine’s editors justified the introduction of the ranking on the basis that international banking was growing fast. There was a need, they said, to make comparisons between different institutions from across the world – a concept that seems blindingly obvious now but clearly wasn’t so at the time.
The object was not to provide “a league table of performance”, they said, “still less to offer an index of efficiency” but to create a valuable tool for bankers engaged in inter-bank lending. Fast-forward 50 years and an essential purpose of the Top 1000 remains that of allowing banks engaged in international business – lines of credit, trade finance, payments, securities – to eyeball a counterparty’s figures to gain perspective on who they are dealing with.
"An essential purpose of the Top 1000 is to allow banks engaged in international business to eyeball a counterparty’s figures to gain perspective on who they are dealing with"
In 1970, Bank of America topped the ranking with assets of $25bn. To give an idea of the massive growth in the industry, compare this with today’s top bank, Industrial and Commercial Bank of China (ICBC), which has assets of $4000bn, making it 160 times larger. This is over a period when world GDP has grown by only 25 times – showing how expansion in the banking industry has far outstripped economic growth.
Fast forward a decade and The Banker expanded its ranking from 300 to 500, arguing that “at a time when more and more financial institutions are undertaking full commercial banking business and when many medium-sized banks are becoming increasingly active on the international scene, a list of only 300 banks would have been restrictive”.
There are two standout features of the 1980 top 10: the dominance of European banks over US ones and the fact that the editors regarded a 17% asset increase as a growth slowdown. French banks put in an especially strong performance, with Crédit Agricole placed first with assets of $105bn, more than four times higher than the figure that gave Bank of America the top spot a decade earlier. BNP stood in fourth place, Crédit Lyonnais sixth and Société Générale seventh.
"Two standout features of the 1980 top 10: the dominance of European banks over US ones and the fact that the editors regarded a 17% asset increase as a growth slowdown"
As always, currency values and inflation rates played their role in the banks’ positioning in the table. Dollar weakness in 1980 mitigated against US banks while UK banks grew by 38% in dollar terms. With that rate of growth, Barclays found itself in ninth position but this, remember, is the era of stagflation that would be met with the monetarist response later in the decade under the administrations of Margaret Thatcher in the UK and Ronald Reagan in the US.
While a huge amount of industrial restructuring was taking place in the UK and the US during the 1980s, leading to high unemployment and a general economic malaise, Asia was starting to emerge as the growth centre of the world. Among the large economies, Japan emerged as the growth leader between 1985 and the early 1990s.
Hence, The Banker’s top 10 for 1990, now ranked by Tier 1 capital, was very much a Japanese affair. Sumitomo Bank came top with other Japanese banks in second, third, fifth, sixth and 10th positions. European banks – Crédit Agricole, Barclays and National Westminster (now part of Royal Bank of Scotland) and Deutsche Bank – managed to stay in the top 10, while US banks were conspicuous by their absence.
The Banker, by now ranking 1000 banks based on Tier 1 capital (which remains the standard format), reported: “Many of the world’s top banks enter the 1990s with profitability still falling and generally lower margins and capital ratios. But there is still plenty of action in Japan and east Asia.” The Japanese asset bubble was, however, destined to end in an almighty bust in late 1991 and early 1992, from which the economy is still struggling to recover even in 2020.
"Many of the world’s top banks enter the 1990s with profitability still falling and generally lower margins and capital ratios. But there is still plenty of action in Japan and east Asia"
By 2000, globalisation was in full swing and The Banker’s top 10 was looking more geographically balanced, with three US banks, two Europeans, four Japanese and, very significantly, a Chinese bank, ICBC, in 10th place.
This was also a time of high profits and The Banker reported: “Banks around the world are more profitable than ever. The Top 1000 world banks in the past year produced total pre-tax profits of $309.7bn, a whopping 77.6% increase on the previous year and $90bn more than the previous record in our 1997 listing.” Citigroup, in first place by Tier 1 capital, saw its profits rise 72.1% to $15.9bn, more than 5% of total profits for the Top 1000. Profits fell back a bit in 2002 and 2003 but then carried on rising until the financial crisis.
Profits and returns have shifted eastwards over the past two decades and the 2007/08 financial crisis reshaped banking but both effects took time to show up in the ranking. By 2010, ICBC had moved up to seventh place in the top 10 but was still the only Asian bank. US banks occupied the first three places, with Bank of America back at number one just as it was 40 years previously.
"By 2010, ICBC had moved up to seventh place in the top 10 but was still the only Asian bank. US banks occupied the first three places"
The final chapter in this story is the arrival of the big four Chinese banks at the top of the ranking. In 2011, ICBC was sixth, CCB eighth, BOC ninth and ABC 14th (up from 28th). In 2019, they hold the top four places, followed by the big four US banks, with HSBC at ninth and Mitsubishi UFJ in 10th. There are 136 Chinese banks in the ranking and China heads the table of bank profits by country with its banks making nearly one third of global profits.
The banking landscape has changed dramatically over the past five decades, but where are we headed next? Will Chinese banks maintain their grip on the ranking or will they lose their dominant position to banks from a different region in due course, just as happened to Japanese, European and American banks?
The Banker’s research team, led by head of research Alberto Berardi together with senior analyst Valeria Yakutovich, will be computing the numbers as they come in to produce the 50th anniversary ranking in July. The results, as ever, will be eagerly awaited especially in such a significant year.
As well as looking back, The Banker’s rankings, and The Banker Database from which the information is drawn, have to look forward. We have recently launched a new ranking of the best-performing banks using a range of data sets to assess performance.
For more on how this new measure works see the report in the January 2020 issue of The Banker, written by Marie Kemplay, on the best-performing banks in the BRICS countries.
50 years of the
Top 1000 World Banks ranking
Brian Caplen, editor of The Banker, talks to managing editor, Joy Macknight, about how the Top 1000 World Banks ranking has evolved over the past 50 years, from US banks’ dominance in the 1970s to the Chinese banks’ meteoric rise since the financial crisis, as well as where profits are being generated and how that has shifted over the past decade. (This was filmed before the Covid-19 outbreak)
The Top 1000 World Banks ranking is a record of the calm before the storm
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 global financial crisis hit – the world’s banking industry 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.
And while the minimum level of Tier 1 capital held by a bank in the Top 1000 ranking has taken a slight dip, standing at $476m compared to $492m in last year’s rankings, it is still at its second highest-ever level.
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.
US banks, on the other hand, 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.
Out of the top 25 banks in the rankings, 11 are Chinese, which is two more than last year. China Minsheng Bank and China Citic Bank have edged into the top 25, pushing Morgan Stanley and Barclays out. Both the US and Europe have five banks in this group, while Japan has just four banks.
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 regional 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.
Top 1000 World Banks ranking
The main trends in the 2020 Top 1000 World Banks ranking are outlined by The Banker's editor, Brian Caplen.