Asian banking industry assets breaches $50 trillion barrier, top 30 banks

Banks in Asia have, since the start of the decade, enjoyed steady growth to their assets. Banks in China for instance enjoyed a nominal CAGR of 15% since 2010, while Vietnam's banking sector booked a 12% CAGR. In total the region saw its share of the global banking market increase for 27% to 40%, while total assets increased from around $37 trillion in 2010 to almost $55 trillion last year. Keeping the momentum may be more difficult in the current climate however, as various headwinds come to affect growth prospects, from economic slowdown to transparency concerns.

The Asian banking sector has enjoyed strong growth since the start of the decade, finds a new report from Oliver Wyman. The report, titled ‘Asia Banking Agenda 2017’, explores recent trends across the industry in the region, as well as likely challenges that are arising in the industry.

The report finds that growth rates between 2010 and 2013 hit 10.5% CAGR, before slowing somewhat to CAGR 6.9% between 2013 and 2016. In absolute value terms, the market grew from around $37 trillion in 2010 to almost $55 trillion in 2016. The region’s banking sector now accounts for 40% of the global market, up from 27% in 2009.

The market grew at relatively different rates. The Chinese market saw the most rapid growth, up 15% in nominal CAGR between 2010 and 2016, with total market value up from just over $21 trillion to almost $40 trillion. Vietnam come second, the market was up 12%. followed by Vietnam at 12%.

Japan was the only banking market to see contraction in the region, at -2% growth. As a comparison, the Eurozone banking market fell by -4% while the US market was up 5%.

In terms of the largest regional banks, ICBC is by far the largest with assets totalling $3.47 trillion. The China Construction Bank comes second, with total assets of around $3 trillion. The Agricultural bank of China and the Bank of China follow, with assets of $2.82 and $2.61 trillion each. The top five banks by assets in the region is rounded off by Mitsubishi UFJ, whose total assets come in at $2.59 trillion.

The top 20 banks in the region is heavily weighted in favour of China, which accounts for 13 in total. Japan comes in second with six entries, while India has one entry at number 17.

The research also finds that the top 30 banks across the region have, aside from enjoying steady growth between 2010 and 2016, also enjoyed strong return on equity. Some of China’s banks, such as Ping An Bank, Bank of Beijing and Bank of Shanghai, have seen asset CAGR of more than 20% over the period. Chinese banks in general are centred around the region’s average 15% growth rate, with few banks in the country growing below 10%.

Returns on equity has been relatively strong across the region, with almost all Chinese banks offering returns above 12%, with the Industrial Bank hitting returns above 17%. Japanese banks, even with stagnation and contraction in asset CAGR, have managed to generate positive RoE over 2016, at around 5% for Nomura Holdings and around 10% for Resona Holdings.

The report finds that various forms of debt have grown steadily as a % of GDP. Public debt, as a % of GDP has remained relatively stable in most Asian countries considered, growing most prominently in Japan, to almost 250% of GDP, as well as in Singapore over the past two years. Corporate loans as a % of GDP have, however, increased markedly in Vietnam, to more than 120% of GDP, while for most countries in the region a relatively stable profile is noted.

Household loans as a % of GDP has, in most of the countries in the region, seen steady increases. Particularly Vietnam, China and Hong Kong have seen increases, while the many of the rest of the households across the region have racked up slightly more debt than in 2010.

The region’s strong track record for growth over the decade to date is, according to the firm, under treat from a number of factors. One are of concern is past growth pushing debt-to-GRP ratios into critical territory across the region, while the number of non-performing loans too has increased. Macroeconomic conditions across the region, particularly the slowdown in the Chinese market, is also creating additional avenues of concern. Global trade and capital flows are being challenged, the consulting firm notes, by a strong US dollar and potential protectionism, while digital disruption is creating a host of threats to the region’s traditional financial services business models.

These challenges can, according to the authors of the report, be tacked through, “... five engines of future momentum that Asian banks should focus on in 2017. These engines feature a total of 22 specific actions. Of course, not all engines and actions are equally relevant for all banks, and every institution’s specific agenda is unique. Yet, across the region we sense that this Asia Banking Agenda will be decisive in maintaining strong growth and value creation.”