While the world has grappled with a once-in-a-lifetime health crisis, the global banking sector has remained resilient, if not undamaged, in the face of unprecedented challenges.
Marie Kemplay crunches the numbers.
The past 18 months have been like none other within living memory. With large parts of the global economy shut down for months at a time, and the fortunes of many individuals and businesses taking a massive hit, the Covid-19 pandemic could have taken a very heavy toll on the global banking sector.
Yet in general — though pre-tax profits in most regions have dropped substantively and many banks are now carrying balance sheets laden with allowances for expected loan losses — the sector has held up remarkably well, especially compared to the financial crisis of 2007-09. In fact, far from being in dire straits, the sector is better capitalised than ever.
"Aggregate Tier 1 capital held by the world’s 1000 largest banks stood at $9.9tn — the highest total on record"
As of the end of 2020 (the review year the 2021 Top 1000 World Banks ranking is based on) aggregate Tier 1 capital held by the world’s 1000 largest banks stood at $9.9tn — the highest total on record and a 12.7% increase compared to the year before. The minimum Tier 1 capital of a bank within the Top 1000 ranking has also hit its highest-ever level, at $547m. It is the first time it has passed the $500m mark, and demonstrates that despite the challenges of Covid-19, the global banking sector is in a strong position to weather the storm.
"Aggregate pre-tax profits fell by 19.2% from $1.25 tn in last year’s data to $936bn, the first time the figure has been lower than $1tn since 2017"
Capital and assets up
Aggregate Tier 1 capital levels have grown at banks across the globe, with only two regions — Latin America and central and eastern Europe (CEE) — suffering levels decline, by 1.2% and 1.5% respectively (though it is worth noting that Latin America has been impacted by currency depreciation and the CEE actually has five fewer banks in the Top 1000 ranking than in 2020). Europe and Asia-Pacific account for the biggest percentage rate increases, at 13.9% and 14.9% respectively. Out of the total increase in global aggregate Tier 1 capital of $1.1tn across all the banks in the Top 1000, China accounted for $465bn of that increase.
Aggregate total assets in the Top 1000 have also increased substantially from $128.1tn in 2020 to $148.6tn in 2021, a 16.0% year-on-year increase. However, the aggregate Tier 1 capital to assets ratio, an important measure of banks’ ability to absorb losses, has decreased slightly year-on-year, from 6.87% to 6.67%. This is effectively the same level as it was in 2018.
However, it is when we turn to profits and profitability that we can start to see the impact of the Covid-19 pandemic, with noticeable drops in the figures compared to last year. Aggregate pre-tax profits fell by 19.2% from $1.25 tn in last year’s data to $936bn, the first time the figure has been lower than $1tn since 2017. Just 16 countries saw their aggregate pre-tax banking profits increase year-on-year.
Aggregate return on assets (ROA), a key measure of profitability, has fallen from 0.72% to 0.51%, its lowest level since 2009. Although it remains substantively higher than this in most regions, only one region has retained an ROA greater than 1% compared to five, including the Middle East and North America, last year; the CEE’s aggregate profitability stands at 1.2%.
Similar trends are also visible for aggregate return on equity (ROE) and return on capital (ROC). This year, just two regions (CEE and Latin America) have an aggregate ROE of greater than 10% compared to five last year, and just three with an aggregate ROC of greater than 10% compared to six last year.
Asia-Pacific, driven by China, now accounts for a whopping 55% of global profits, based on net income data, compared with 43.5% last year. North America is responsible for 24% (26% last year) and western Europe is now responsible for just 10% of global banking profits, down from 16% last year and nearly one third a decade ago.
There is little evidence of China — the country first hit by Covid-19 — suffering any long-term economic damage as a result of the pandemic. Its banks have actually managed to consolidate their position even further, with ICBC, China Construction Bank, Agricultural Bank of China and Bank of China holding the top four positions for the fourth year in a row.
ICBC has now been at the top of the table for nine consecutive years. Its Tier 1 capital has grown to $439.9bn, the highest individual bank total on record and a $59.7bn increase compared with last year (an uplift almost equivalent to the total Tier 1 capital held by ING, the 36th largest bank in the Top 1000).
Capital levels at Chinese banks continue to grow significantly, up 18.6% year-on-year, compared to the global average of 12.7%. They now account for 30% of global aggregate Tier 1 capital in the Top 1000 compared with 11% in 2011 and just 5% in 2001. And China accounts for 62% of Asia-Pacific’s Tier 1 capital, compared to 15% for Japan, the next largest contributor to the total.
This continuing growth in capital levels across the banking sector now means China accounts for an even greater share of the top 20 banks: nine compared to seven last year. Industrial Bank has crept up from 21st position in 2020 to 19th in this year’s ranking. Postal Savings Bank of China makes the more impressive leap, however, from 22nd in 2020 to 15th this year, with its Tier 1 capital increasing by 32.8% compared to last year. The US is the only country in the Top 1000 ranking to feature more banks than China, although the gap is narrowing. China has 144 banks in this year’s ranking (compared to 143 last year) and the US has 178 (compared to 184 last year).
China’s banks have also performed strongly in pre-tax profits — as part of the select club of just 16 countries to see such an increase — with aggregate pre-tax profits increasing 5.2% year-on-year. Chinese banks account for 37% of global aggregate pre-tax profits, and 69% of aggregate pre-tax profits for Asia-Pacific.
At an individual bank level, pre-tax profits at ICBC hit $60.1bn, the highest total on record. Out of the nine Chinese banks in the top 20, four have seen double-digit increases in pre-tax profits – 10.3% for China Construction Bank; 11.9% for China Merchants Bank; 14.4% for Postal Savings Bank of China; and 10.1% for Industrial Bank.
In the last year, China’s banks also appear to have improved their ability to leverage their assets for profit. In previous years The Banker has reported that while Chinese banks had larger balance sheets and achieve larger profits than their nearest US peers, in relative terms the leading US banks appeared more efficient at generating profit than their Chinese counterparts. This no longer appears to be the case.
In 2020, US banks held 13.6% of total global assets but generated 21.9% of global profits, compared to Chinese banks, which held 24.6% of total assets, but only generated 28.5% of global pre-tax profits. According to this year’s data, China now holds 25.3% of the world’s assets ($148.6tn) and generates 37.2% of profits, while the US holds 13.5% of assets and generates 18.5% of pre-tax profits.
"Chinese banks account for 37% of global aggregate pre-tax profits, and 69% of aggregate pre-tax profits for Asia-Pacific"
US banks hold on
For the most part, the major US banks have held fast to their positions from the previous year. JPMorgan Chase remains in fifth position, and is still the highest ranked US bank in the Top 1000 with $234.8bn in Tier 1 capital, a 9.5% year-on-year increase. Bank of America also remains in sixth position. However, Wells Fargo has fallen from seventh place to ninth position in the rankings, enabling Citi, previously in eighth place to jump up one position.
Even before Covid-19, Wells Fargo had been grappling with a number of challenges on its journey back towards better performance. CEO Charlie Scharf, who took over in October 2019, has installed new staff in senior positions, introduced new structures to improve control and oversight at the bank, and prioritised the development of a culture of accountability in the wake of the so-called ‘fake accounts’ scandal of 2016. Given the wider events of 2020, it is difficult to get a sense of what impact these efforts have had so far on the bank’s fortunes.
Importantly, the bank remains subject to the $1.95tn asset cap imposed by the Federal Reserve in February 2018 (albeit with some exemptions granted for pandemic-related business lending), on the basis that its growth would be restricted until it could demonstrate clear improvements in governance. So, it is not surprising that its total assets have remained largely flat. Its Tier 1 capital has also slightly fallen by 0.47% year-on-year.
Goldman Sachs, the only other US bank in the top 20, has fallen from 16th position in the rankings to 20th. Despite its Tier 1 capital increasing by 8.5%, it has been overtaken by four Chinese banks. Morgan Stanley, which saw its Tier 1 capital increase by 19.9%, narrowly missed out on a position in the top 20. It has jumped from 26th position in 2020 to 21st this year.
Morgan Stanley has punched above its weight in a number of respects this year, earning $14.4bn in pre-tax profits, a 28% year-on-year increase and more than Citi, ranked eighth. Goldman Sachs also saw its pre-tax profits increase, by 16%. As large investment banks, both have benefited from the strong market conditions over the last year, particularly within their global markets and sales and trading divisions, respectively, as well as record levels of activity in debt capital markets, equity capital markets, and a busy period for mergers and acquisitions (M&A). And, unlike other banks, they have not been encumbered by the challenges of managing large retail and business loan books during the pandemic.
"Morgan Stanley has punched above its weight in a number of respects this year, earning $14.4bn in pre-tax profits, a 28% year-on-year increase"
Pre-tax profits fall
Universal banks JPMorgan Chase, Bank of America, Citi and Wells Fargo all saw their pre-tax profits fall by 20.5%, 42%, 41% and 98% respectively. US banks have not been alone in seeing their pre-tax profits fall: in total, 601 of the banks in the Top 1000 this year had lower pre-tax profits than last year, and 38 banks made a loss. Of those 38, 18 are in Europe and the six banks with the highest losses are all in Europe.
Spain’s BFA Tenedora de Acciones (Bankia) had the biggest loss of any bank in the Top 1000, of $6.5bn, followed by Germany’s Commerzbank at $3.2bn and Italy’s UniCredit at $3bn. All three banks are currently undertaking actions that will make a substantive impact on their operations. Bankia is currently in the process of merging with CaixaBank, Spain’s third largest bank; the banks have told their customers that the process should be fully complete by the end of 2021, with the new entity operating under the CaixaBank brand. Though the new entity does not have a substantive overseas presence (unlike rivals BBVA and Santander), it will be a major player in the domestic Spanish market.
In February, Commerzbank announced a major restructuring programme, which includes cutting 10,000 staff, more than a fifth of its workforce, as well as the closure of 340 of its 790 branches. The bank is hoping that slashing its costs and improving its digital offering will pave the way for better performance.
As for UniCredit, change at the top is likely to dictate a shift in direction. In April, Jean-Pierre Mustier, CEO since 2016, stepped down and was replaced by Andrea Orcel – former president of UBS’s investment bank and well-known for his ill-fated attempt to become CEO of Santander in 2018. In May, Mr Orcel indicated that he wanted to move the bank into a new phase focused on growth and opened the door to acquisitions of smaller Italian rivals — something that Mr Mustier had previously ruled out.
A top 20 bank, Spain’s Santander (17th), made the fourth largest loss at $2.6bn – it reported its first-ever loss in its 160-year history in July last year. At a country level, Ireland, Greece, Spain, Portugal and Cyprus all had pre-tax losses at an aggregate level.
"One notable standout success story within Europe is Deutsche Bank. In February this year, it reported its first net profit since 2014"
European profit challenges
Profitability had been a challenge for Europe’s banks for some years before the pandemic, with tepid economic growth and a low interest rate environment squeezing returns. Key measures of profitability for the region have slumped even further this year. Return on equity, already at a none-too-impressive 5.9% in 2020, now stands at just 2.8%; return on capital has fallen from 6.9% to just 3.1%; and return on assets is now at a paltry 0.16%.
However, one notable standout success story within Europe is Deutsche Bank. In February this year, it reported its first net profit since 2014 and its pre-tax profits also increased by $4.2bn year-on-year from a loss of almost $3bn to pre-tax profits of $1.3bn. It tops the table of the 10 biggest movers from losses to profit. Deutsche had undergone a significant restructuring involving the loss of tens of thousands of jobs and with its investment bank, in particular, the target of efforts to create a “more stable and competitive” operation. In 2020, the investment banking division accounted for more than 38% of the core bank’s revenue and was the only one of its four main divisions to see revenue increase.
HSBC remains the only European headquartered bank within the top 10 banks by Tier 1 capital. It has moved up one position from ninth to eighth position, with its Tier 1 capital increasing by 8.0% year-on-year. Its pre-tax profits fell 34% year-on-year largely as a result of having to set aside considerable sums to cover loan losses.
Among the noise generated by the Covid-19 pandemic, it is hard to pinpoint within the figures what the impact has been of the bank’s restructuring programme, which it commenced in February last year. In the long term, the bank is pegging its hopes on Asia-Pacific and the Middle East to deliver growth in the coming years; the bank already generates most of its income from business done in Asia-Pacific.
France’s two largest banks, Crédit Agricole and BNP Paribas, have maintained their positions within the rankings at 12th and 13th, and with growth in their Tier 1 capital of 19.9% and 20.7% respectively. Although both have seen year-on-year falls in pre-tax profits of 14.3% and 5.3%, in the circumstances this is not an especially bad outcome.
Japan — which in 2019 and 2020 had four banks in the top 20 of the ranking — is now back down to just two. MUFG has held its ground in 10th position, with a marginal increase in Tier 1 capital. Sumitomo Mitsui has dropped from 14th position to 16th, despite increasing its Tier 1 capital by 7.3%, having been outpaced by two Chinese banks. Mizuho, which had been in the top 20 since 2017 is now in 22nd position; and Norinchukin Bank — which made the impressive leap from 28th position to 18th in 2019, then dropped to 19th in 2020 — has since fallen to 25th place in the rankings.
"HSBC remains the only European headquartered bank within the top 10 banks by Tier 1 capital. It has moved up one position from ninth to eighth position"
Outside of the largest players represented towards the top of the rankings, it has been a similar story down the rankings in terms of those banks, and economies, under pressure.
Africa, which had been enjoying steady, if slow, growth in the pre-tax profits earned by its banks has seen this fall by 35% year-on-year to $14.7bn, the lowest total since 2012. Eight out of the nine countries represented within the Top 1000 saw aggregate pre-tax profits decrease year-on-year. This includes South Africa, the region’s largest banking economy, where aggregate pre-tax profits fell by 56.1% year-on-year to just $4.4bn – its lowest total since 2004.
The one exception is Egypt, which had a 3.2% increase in aggregate pre-tax profits. Though this is significantly down on the 55.9% increase in pre-tax profits it experienced in 2020, it remains a positive under current circumstances. Egypt has also maintained its strong growth in Tier 1 capital, increasing by 31.5% year-on-year. As a whole, the region has been able to maintain its steady growth, with aggregate Tier 1 capital increasing by 7.4%.
In Latin America (including the Caribbean) the situation is more universally challenging. For all but two out of the 15 countries (Guatemala and Uruguay), aggregate pre-tax profits have fallen, and for several aggregate Tier 1 capital has fallen too. This includes Brazil, the region’s largest economy, where aggregate pre-tax profits fell 60% year-on-year and Tier 1 capital fell 8.2% (though, as already mentioned, the region has been negatively impacted by currency depreciation).
Middle Eastern banks have also had a difficult year, with aggregate pre-tax profits falling by 28.5%. For the region’s largest banking economy, Saudi Arabia, they have fallen by 21.1%, and by 41.4% for its second-largest, United Arab Emirates. Saudi British Bank, the region’s 12th largest bank made the 10th largest pre-tax loss, globally, of $1.1bn. However, having fully completed its merger with Alawwal Bank (another Saudi Arabian bank) in March this year, the bank will be hoping for better fortunes.
"At an aggregate global level, an additional $352bn has been set aside in allowances for loan losses"
Loan books under pressure
Undoubtedly the Covid-19 pandemic has had a major impact on banks’ profitability this year, with only a minority of institutions appearing to be immune to its impact. One of the most obvious impacts is visible in the allowances for loan losses that many banks have had to set aside in anticipation of souring loans caused by the widespread and persistent economic disruption witnessed across the globe.
At an aggregate global level, an additional $352bn has been set aside in allowances for loan losses (held as contra assets on banks’ balance sheets), an increase of 26% compared to 2020. However, the picture varies considerably by region. In North America, for example, the amount set aside in allowances for loan losses has more than doubled since 2020, whereas in Asia-Pacific it is up by a more modest 25%; 22% in Africa, as well as in the Middle East; and just 17% in Europe. The three countries with the largest year-on-year increases in allowances for loan losses are the US (106.1%), the Philippines (98.5%) and Indonesia (89.9%).
A possible explanation for the higher figures for the US relates to accounting rules. Since the start of 2020, US banks have had to adhere to the US Financial Accounting Standards Board-mandated current expected credit losses (CECL) accounting standard. This is a significant development, as it means that US banks must effectively front-load their response to expected losses that may occur at any time during the life of the loan.
The majority of other jurisdictions operate under International Financial Reporting Standards (IFRS) 9 rules, which includes a tiered approach on when and how to account for expected credit losses depending on what stage of credit risk or credit impairment a financial asset is judged to be at. In effect, this means the figures for US banks may be somewhat amplified when compared to international peers, and vice versa.
Impairment charges (costs that recognise the diminishing value of assets, included on the income statement that is, resulting in a reduction in profits) have also increased considerably. Although impairment charges can relate to assets other than souring loans, they are likely to have been a significant driver in the increases in this period. China, followed by the US, have the two highest levels of aggregate impairment charges in the world. However, given that they are the two countries with largest banking balance sheets this is perhaps unsurprising. What is perhaps more significant is that total impairment charges at US banks have increased by 157% year-on-year, compared to just 22% for China.
The US has seen far from the most extreme increases in impairment charges, however. At an aggregate level, Belgian banks saw year-on-year impairment charges increase by 1603%, followed by Norway at 392% and Denmark at 334% (we excluded countries with fewer than five banks in the ranking in this analysis). To fully understand the impact of these charges, though, they should be viewed in the context of their impact against operating income. And while these countries may have seen the highest aggregate increases, they are not the hardest hit. Portugal, where aggregate banking impairment changes account for 49.9% of operating income, is arguably the country most under strain from this issue. It is followed by Kuwait, with a ratio of 39.5%, and Colombia at 39.2%.
Real effect delayed
Given the continuing high levels of economic support being provided by governments and central banks across the world, it may be some time before the real effects of the pandemic are felt in relation to loan losses in many jurisdictions.
However, despite the challenging circumstances facing banks over the past 18 months, the banking sector does appear to be far more resilient a decade or so on from the global financial crisis — and not only in terms of healthy levels of capitalisation ensuring that there has been no existential threat posed by the difficulties of the pandemic. On profits, while the Top 1000’s combined pre-tax profits dropped by 18.8% year-on-year, the fall is nowhere near as dramatic as during the global financial crisis, when profits plummeted by 85.3% in 2009.
For context, the three countries whose banks were hardest hit — the US, the UK and Germany — saw pre-tax losses in 2009 of $91bn, $51bn and $35bn, respectively. In 2020, banks in all three countries continued to make profits of $173bn, $18bn and $3bn, albeit these were much smaller than in 2019. Bolstered by government support programmes, banks have also expanded their lending, with aggregate gross total loans increasing by 11.4%, though this was not enough to offset the larger growth in allowances for loan losses.
However, the pandemic has been a period of extremes. While many businesses and individuals have suffered terrible financial outcomes as a result of the disruption, in other parts of the global population that have been able to continue working, the enforced home working and lockdowns that limited their spending opportunities have resulted in a big boost to savings. Aggregate gross total deposits have shot up by $13.7bn across all banks in the Top 1000, a 17% year-on-year increase.
In North America and Europe, the increases have been higher than this global average, at 22% and 18%. In the short term, particularly while interest rates remain so low, this influx of capital will be a source of cheap funding for many banks.
"Despite the challenging circumstances facing banks over the past 18 months, the banking sector does appear to be far more resilient a decade or so on from the global financial crisis"
Last year appears to have been a relatively quiet one for banking merger and acquisition (M&A) activity within the Top 1000, and 2021 looks set to be busier. The largest deal involved Unione di Banche Italiane (UBI Banca), previously Italy’s fifth largest bank, which was purchased by Intesa Sanpaolo in April 2020. However, due to competition concerns, Intesa agreed to sell about 500 branches from the enlarged group to BPER Banca, which explains why BPER is listed as the acquirer in our table.
The US saw the most activity, with four different banking M&A transactions completing during 2020. The largest being the “merger of equals” between IberiaBank (so called as it was founded in New Iberia, Louisiana) and First Horizon, headquartered in Tennessee. The new entity is branded under the First Horizon name and operates across 11 states in the south-eastern US.
The foreign exchange effect
For comparability and consistency, we convert all the data used in the Top 1000 into US dollar values. However, year-on-year depreciation in the value of some currencies can have the effect of suppressing the position of some banks within the ranking. For transparency, the table “The Foreign Exchange Effect” lists the 50 banks within the Top 1000 that would move up rankings the most if the effects of the depreciation were recalibrated. Typically, smaller banks are affected the most — this year, the largest bank affected is Russia’s Otkritie Financial Corporation Bank, which could have been in 223rd position in the rankings, rather than 256th without the effects of currency depreciation.
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Top 1000 World Banks ranking
The main trends in the 2021 Top 1000 World Banks ranking are outlined by The Banker's editor, Joy Macknight
US mutual bank’s IPO positions it at the top
All eyes were on Eastern Bank Corporation as it went public in October 2020, one of the few initial public offerings of the year by a US bank. As one of the oldest and largest mutual savings banks in the country, some believe that its demutualisation signals an appetite for acquisitions.
Importantly, the move allowed the bank to increase its assets by 37.3% and its Tier 1 capital by a whopping 136.5%, to $3bn, securing it first place in the highest movers’ table. It also jumped up 254 places in the Top 1000 ranking, to 406th.
Its compatriot, South State Corporation, comes in third place in the movers’ table following its merger with CenterState. The regional tie-up created the eighth largest bank headquartered in the US south-east. Retaining the South State name, the merged entity enhanced its Tier 1 capital by 109.2% and rose 202 positions to 408th in the main ranking.
Sandwiched between the two US mega-risers is another bank from the Americas: Banco Provincia of Argentina, which managed to increase Tier 1 capital by 114.4%, moving up 226 places to 732nd, despite the country’s challenging environment — the economy contracted year-on-year by 19.1% in June 2020 before rebounding towards the end of the year.
Banco Provincia is joined in the top 25 movers by two other Argentinean banks: Banco Credicoop and Banco de la Nación Argentina, which improved their Tier 1 positions by 80.4% and 76.0%, respectively. Three other US community or regional banks also made the top 25: FirstBank, First Horizon National Corp and Pacific Premier Bancorp.
Outside the Americas, Asian banks had a good showing in the top 25 table, with five banks each from China and India, and one bank each from South Korea and Vietnam. The biggest gain in Tier 1 from an Asian bank is Union Bank of India, which added 84.2% and rejoins the Top 1000 ranking after a year’s absence. This is extra impressive given the tough operating environment the Indian banks have been operating in over the past few years.
This is the first time an Indian bank has featured in the top 25 highest movers table since 2017. That time it was Yes Bank, which also managed to secure a spot this year. Following tight on the heels of Indian Bank, which saw a rise of 74.7% in Tier 1, Yes Bank’s improvement of 71.1% put it in third place among the country’s banks and 13th place in the table overall.
Punjab & Sind Bank and Canara Bank, which are also returners to the Top 1000, round off the top five Indian lenders, with increases of 54.6% and 48.2%, respectively.
While China is well represented, its five banks are located towards the bottom of the highest movers table. Bank of Fushun, a commercial bank based in Liaoning province, takes 19th position with a 51.2% rise in Tier 1 capital, followed by Bank of Jinzhou, which had required $419m in state-engineered support in 2019. Over the course of 2020, the latter added 48.1% to its Tier 1 position.
For the second year in a row, Chinese challenger MYBank — launched in 2015 by e-commerce giant Ant Group — has made it into the top 25 for Tier 1 expansion. Last year it added 93.3% to its Tier 1, while this year was a more muted – but still impressive – 46.8% increase. This year it is joined by another digital challenger, XW Bank, which was founded in 2016 and backed by Chinese electronics company Xiaomi. For its inaugural entry into the Top 1000 World Banks ranking, XW Bank rounds out the top 25 movers with a Tier 1 rise of 45.3%.
Swedish bank Klarna is another digital challenger that made it into the highest movers’ club, and is one of only three European banks that managed to do so. While Klarna increased its Tier 1 position by 57.5%, Banque Postale of France managed a 97.2% rise and Fineco of Italy improved by 61.2%.
New arrivals/welcome back
New arrivals at lowest level for more than 10 years
Only 14 new banks from 10 countries joined the Top 1000 World Bank ranking in 2021, the lowest number of arrivals seen in more than a decade and less than half of the new entrants compared to last year. This is indicative of a low level of merger and acquisition activity among the world’s largest banks.
The Asia-Pacific region is well represented in the new arrivals table with seven banks, five of which come from China.
The highest new entrant is the country’s Mengshang Bank, which jumps into the Top 1000 ranking at 394th position, with $3.1bn in Tier 1 capital. The bank took over the assets and operations of Baoshang Bank, an Inner Mongolian commercial lender that had been struggling for years. It had not filed an annual report since 2017 before the China Banking and Insurance Regulatory Commission (CBIRC) stepped in to rescue it in mid-2019.
State-owned China Construction Bank was appointed to oversee operations through Baoshang’s reorganisation. State investors including a national deposit insurance fund managed by the central bank and the government of the Inner Mongolia autonomous region took part in the restructuring.
Compatriots Foshan Rural Commercial Bank, from the central Guangdong Province, is the third largest arrival, with $2.4bn in Tier 1 capital and sitting in 480th position in the global ranking, followed by the Bank of Tibet, which was established in 2012 in the autonomous region, and Ningbo Commerce Bank, located in the eastern province of Zhejiang. The two Chinese banks entered the global ranking in 694th and 696th place, respectively, both with Tier 1 capital of around $1.3bn.
Chinese digital challenger XW Bank enters the Top 1000 ranking at 932nd position, with $659m in Tier 1 capital. With a year-on-year rise of 45.3%, the internet bank also made it into the top 25 highest movers’ table. Founded in 2016, XW Bank is based in Sichuan province and backed by Chinese electronics company Xiaomi and conglomerate New Hope Group.
With an open banking model, the internet bank offers tailored financial products such as entrepreneur loans and micro, small and medium-sized enterprise (SME) loans. However, it has come under regulatory scrutiny in March this year, when the CBIRC criticised it for high interest rates on loans and failing to follow risk assessment and debt collection regulations.
South Korea’s KakaoBank takes second place in the new arrivals table, with $2.5bn in Tier 1 capital, and joins the Top 1000 in 464th place. Launched in mid-2017 as one of the country’s first digital banks, KakaoBank offers consumers online/mobile-only banking services. It has $24.5bn in assets, expanding its asset base by 24.8% year-on-year.
At a time when challenger banks are being criticised for operating in the red and prioritising growth over profitability, both XW Bank and KakaoBank recorded pre-tax profits of $120m and $112m, respectively, in 2020.
Vietnam’s addition to the Top 1000 in 2021 is Orient Commercial Bank, which enters in the ranking at 962nd place. In early 2020, Japanese commercial bank Aozora Bank invested $138m to acquire a 15% stake in the mid-sized Vietnamese lender.
The western European region saw three banks join the ranks of the Top 1000: online retail bank WiZink Bank of Spain, in 889th place with $742m in Tier 1 capital; UK SME challenger OakNorth Bank, in 904th place and $705m in Tier 1 capital; and Sparebank 1 BV, a Norwegian savings bank, in 957th place with $613m in Tier 1. Of the three, WiZink Bank increased its Tier 1 by the biggest margin, rising by 25.7%, while OakNorth increased its asset base the most, by 15.7%.
In the Americas, Brazilian digital bank Banco Inter entered the exclusive Top 1000 club, at 969th place. Launched in 1994, it operated as Banco Intermedium until 2017. The bank caters to both private and business customers and, despite a challenging domestic environment, managed to add 12.6% to its Tier 1 capital. Canada’s Equitable Bank, which provides residential and commercial real estate lending services, as well as personal banking through its direct banking brand EQ Bank, also had its premiere in 2021, coming in at 717th place. The lender increased its Tier 1 by 15.9%, to $1.2bn.
Last year, 19 US institutions joined the Top 1000 ranking, constituting more than half of the 33 new entrants; however, this year the country added only one: The Bancorp Bank. Based in Delaware, the bank serves non-bank financial service companies, ranging from entrepreneurial start-ups to those on the Fortune 500. It joins in 989th position, increasing its Tier 1 capital by 17.9%, to $561m.
Kenya also added one bank to the Top 1000 in 2021 — NCBA Bank. With $594m in Tier 1 capital and placing 967th in the main ranking, NCBA Bank has assets worth $4.8bn and generated profits of $46m in 2020.
Returning number stable
While the number of new arrivals may have dramatically reduced year-on-year, the number of banks being welcomed back into this exclusive Top 1000 group has remained about the same. Last year, 36 institutions made a reappearance after a short absence, while this year there are 31.
The country fielding the largest number of returners is India, with 13 banks back in the ranking in 2021. In 2020, 24 Indian banks were unable to provide data for our analysis and therefore could not be included in the ranking. Three of the largest returners are from India: Bank of Baroda (ranked 152nd), Union Bank of India (199th) and Canara Bank (214th). But this list also includes longstanding members of the Top 1000 club, such as Bank of India, Indian Bank, IDBI and Bandhan Bank.
Last year, China had the greatest number of banks returning to the ranking, whereas India had none. This year, four Chinese banks have also come back into the fold: Chengdu Rural Commercial Bank, Hubei Bank, Wuhan Rural Commercial Bank and Hankou Bank. Like their Indian counterparts in the welcome back table, they were unable to submit end-of-year financial data for our analysis last year.
Germany has three banks in the welcome back table — Frankfurter Volksbank, Berliner Volksbank and BB Bank — whereas last year it had none.
In 2020, we lost 10 Lebanese banks from the Top 1000 global ranking. The country’s banking industry faced serious economic headwinds and political turmoil throughout 2019, which carried into 2020. We are pleased to see Bank Audi back in the ranking in 2021 — the highest ranking non-Asian bank to rejoin in 372nd place — and look forward to including more Lebanese banks in future.
Return on assets
United National regains its ROA crown
After being knocked off the top of the return on assets (ROA) ranking in 2020, United National Corporation, a large US community bank, is back in pole position and, impressively, has managed to improve its ratio to 14.80%. It is the only bank in the Top 1000 World Banks ranking to achieve a double-digit ROA.
Ukraine’s PrivatBank has the second highest ROA ratio (6.42%); however, this represents a decline from last year’s 10.55%. Tinkoff Bank has the third highest ratio (5.15%), which is also slightly lower than last year. Overall, central and eastern Europe has the highest ROA of all the regions, at 1.20%.
Guaranty Trust Bank is the only other bank with an ROA ratio of above 4%. This year, the Nigerian bank overtook Banco de Fomento Angola to head the African table for the first time.
Banco Marco of Argentina continues to top the Latin America table for the third year in a row, however its ROA dropped from 9.52% to 3.93%. In second place is Banco Hipotecario del Uruguay, up from the fourth spot last year.
Saudi Arabia’s Al Rajhi Bank has regained first place in the Middle East table, after a two-year stint in second place.