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Comparing China's Largest Banks

Previously, in Introducing China's Banking Sector, we explored the history of China's banking sector over the past 120 years and provided an overview of how the country's banking system is currently structured. Subsequently, in Introducing China's Largest Banks, we introduced China's ten largest banks based on 2022 total assets, including each bank's history, relative size ranking, and ownership structure.


In this article, we compare China's ten largest banks based on various financial metrics, including a revenue breakdown analysis based on revenue driver, business type, and geography, as well as a profitability analysis based on operating and net profit margins.


As a recap, the ten largest Chinese banks are presented again below.


China's Ten Largest Banks By Total Assets
Data Source: China Banking Association (中国银行业协会)

In The Future of China's Banking Industry, we discuss some key trends and factors that can affect the future of China's banking industry.


China Banking Series

 

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Total Revenue - General Trends and Comparison

We first look at each bank's total revenue over the past decade from 2013 to 2022, as well as their compound annual growth rates (CAGRs) over the same time period.


#1: Total Revenue Grew Steadily Across All Banks Over The Past Decade, With Differential Rates of Growth Correlated With Business Size And Scale

As a whole, China's ten largest banks grew steadily (albeit with some slight fluctuations) in terms of total revenue, with the Big Four banks (see below) growing at more moderate rates than other, smaller banks. Specifically, the Big Four grew at CAGRs of 4% to 5% over the past ten years, while the Bank of Communications grew at a CAGR of 5.8%, Shanghai Pudong Development (SPD) Bank grew at a CAGR of 7.3%, China CITIC Bank and Industrial Bank grew at CAGRs of 8%, the Postal Savings Bank of China (PSBC) grew at a CAGR of 9.7%, and China Merchants Bank led with the highest CAGR of 11.1% over the same time period. The relatively lower CAGRs of the Big Four is highly likely attributable to the comparatively large size and scale of their businesses.


Note: the Big Four banks refer to the Agricultural Bank of China, the Bank of China, China Construction Bank, and ICBC.


#2: There Is Little Change In The Relative Ranking Of Bank Revenue Each Year

We see little change in the relative ranking of banks each year, with the Big Four leading significantly in the exact same order of total revenue, i.e. ICBC has the highest revenue, followed by China Construction Bank, the Agricultural Bank of China, and the Bank of China respectively. The Bank of Communications, China Merchants Bank, and PSBC rank between fifth to seventh place each year, although China Merchants Bank and PSBC grew at noticeably faster rates than the Bank of Communications in the latter half of the past decade. Finally, China CITIC Bank, Industrial Bank, and SPD Bank rank between eighth to tenth place in terms of total revenue each year, with relatively similar revenue levels across the three banks.


In 2022, ICBC had the highest revenue of RMB841 billion, followed by China Construction Bank in second place at RMB758 billion, the Agricultural Bank of China in third place at RMB725 billion, and the Bank of China in fourth place at RMB619 billion. China Merchants Bank generated the fifth highest revenue of RMB342 billion, followed by PSBC in sixth place at RMB335 billion and the Bank of Communications in seventh place at RMB273 billion, Industrial Bank in eighth place at RMB222 billion, China CITIC Bank in ninth place at RMB211 billion, and finally SPD Bank in tenth place at RMB188 billion.


Total Revenue of Top Ten Largest Chinese Banks
Data Sources: Company Annual Reports (click image to enlarge)

Revenue CAGR for Top Ten Largest Chinese Banks
Data Sources: Company Annual Reports

Total Revenue - Revenue Driver Breakdown

We break down each bank's revenue over time based on revenue driver.


Each bank's total revenue comprises of three revenue drivers:

  • Net interest income - interest income minus interest expenses

  • Net fee and commission income - fee and commission income minus fee and commission expenses

  • Other non-interest income - all other revenue drivers that are not interest-, fee-, or commission-related; this can differ from bank to bank and can include any combination of items such as trading gains and losses, premium income from insurance businesses, and rental income


#1: Some Banks Exhibit Somewhat Similar Net Interest Income Trends, While No Substantial Trends Seem To Exist For Net Fee And Commission Income and Other Non-Interest Income

The six nation-owned banks (国有银行) (see below) have similar Net Interest Income trends except for the Bank of Communications, which had a decline in Net Interest Income in both 2016 and 2017, in contrast to the other five nation-owned banks which only experienced a dip in 2016. China Merchants Bank has a similar Net Interest Income trend as the five nation-owned banks excluding the Bank of Communications, while China CITIC Bank, Industrial Bank, and SPD Bank each have their own trends. In contrast, there seems to be very little to no correlation in the trends of Net Fee and Commission Income and Other Non-Interest Income across all banks.


Note: the six nation-owned banks specifically refer to the six largest banks (i.e. the Big Four, the Bank of Communications, and PSBC), which also have management heads that are directly appointed by the central government (see Introducing China's Banking Sector for a further explanation of the different classifications of bank ownership in China)


Agricultural Bank of China Total Revenue Breakdown
Data Sources: Company Annual Reports

Bank of China Total Revenue Breakdown
Data Sources: Company Annual Reports

Bank of Communications Total Revenue Breakdown
Data Sources: Company Annual Reports

China Construction Bank Total Revenue Breakdown
Data Sources: Company Annual Reports

China Merchants Bank Total Revenue Breakdown
Data Sources: Company Annual Reports

China CITIC Bank Total Revenue Breakdown
Data Sources: Company Annual Reports


ICBC Total Revenue Breakdown
Data Sources: Company Annual Reports

Industrial Bank Total Revenue Breakdown
Data Sources: Company Annual Reports

PSBC Total Revenue Breakdown
Data Sources: Company Annual Reports

SPD Bank Total Revenue Breakdown
Data Sources: Company Annual Reports


We also compare each bank's revenue mix over time by examining how much or how little each revenue driver changes as a percentage of total revenue for the bank.


#2: The Top 10 Banks Are Relatively Dependent On Net Interest Income Compared With Peers In The US And Eurozone

The ten largest Chinese banks generate a relatively high proportion of their revenues from net interest income (which we call high "net interest income ratios") in comparison to US and Eurozone banks. PSBC is the most dependent on net interest income among the ten banks, with net interest income accounting for 80% to over 90% of total revenue, corresponding with the bank's traditional model that focuses primarily on lending and deposit-taking (see Introducing China's Largest Banks for a summary of each bank's business model). The Big Four banks, which are also the only Chinese banks to be designated as Global Systemically Important Banks (G-SIBs) by the Financial Stability Board, have net income ratios ranging between 70% to nearly 85% over the past decade, in contrast to averages of 53% for Eurozone G-SIBs and 38% for US G-SIBs in 2021 (see here).


The remaining five Chinese banks under consideration have net interest income ratios in the 60% to 80% range. Interestingly, the Bank of Communications is less reliant on net interest income than the other five nation-owned banks, with a net interest income ratio of 60% to 64% for the past six years.


For additional comparison, a study (here) finds that the 27 largest banking groups in the Eurozone area had an average net interest income ratio of 48% from 2002 to 2021, while another research (here) examining 109 large banks in the Eurozone show that the banks in the sample had an average net interest income ratio of 64% between 2007 to 2016. According to Federal Reserve data (here), large American bank holding companies with total assets greater than US$750 billion only had net interest income ratios in the 40% range over the past decade.


Revenue Breakdown of Top Ten Largest Chinese Banks
Data Sources: Company Annual Reports (click image to enlarge)
Revenue Breakdown of Top Ten Largest Chinese Banks
Data Sources: Company Annual Reports (click image to enlarge)

Note: percentages may not sum up to 100% exactly due to rounding



Total Revenue - Banking Activity Breakdown

We turn to analyze each bank's revenue breakdown based on type of banking activity.


Six of the ten banks adopt a four-segment revenue breakdown as follows:

  • Corporate Banking

  • Retail (Personal) Banking

  • Treasury Business/Operations

  • Others

The Bank of China uses the above four-segment approach but also has an additional Investment Banking and Insurance segment, which generally increased over the past decade and accounted for 4% to 7% of the bank's total revenue each year.


China Merchants Bank adopted a three-segment approach prior to 2016 which comprised of the Corporate Financial Business, Retail Financial Business, and Interbank Financial Business segments. In 2016, the bank adopted a new three-segment approach (with retrospective data stated for 2015) comprising of the Wholesale Finance, Retail Finance, and Others segments. While they may sound similar, the Wholesale Finance segment is not exactly equivalent to the Corporate Financial Business segment and the Retail Finance business is not exactly equivalent to the Retail Financial Business segment.


Industrial Bank and SPD Bank do not report a breakdown of total revenue by type of banking activity.


#1: Retail Banking Revenue Increased Across The Past Decade For All Banks

Retail banking revenue increased both in raw monetary terms and as a percentage of total revenue for all eight banks that report a total revenue breakdown. In 2022, retail banking accounted for between 40% to 50% of total revenue for six of the eight banks. The remaining two banks had a higher proportion of total revenue generated by retail banking, with 56% of China Merchants Bank's and 70% of PSBC's 2022 total revenues being attributable to retail banking respectively.


#2: Corporate Banking As A Percentage Of Total Revenue Decreased For Most Banks

Corporate banking revenue decreased as a percentage of total revenue for seven out of the eight banks that report a total revenue breakdown. PSBC was the exception with an increasing followed by decreasing trend in corporate banking revenue as a percentage of total revenue. In 2022, corporate banking contributed between 36% to 46% of total revenue for seven of the eight banks. The exception is PSBC, where only 15% of total revenue was generated from corporate banking activities.


In raw monetary terms, there is variability in trend across the banks. Corporate banking revenue fluctuated across the past decade for the Agricultural Bank of China and the Bank of China, increased over the past four years for the Bank of Communications and China Construction Bank, and increased over the past decade for China Merchants Bank, China CITIC Bank, and ICBC. PSBC's corporate banking revenue increased in raw monetary terms to reach a peak in 2019 before gradually declining.


#3: There Are No Consistent Trends In Treasury Business Revenue Across The Banks

In raw monetary terms, treasury business/operations revenue fluctuated across the past decade for the seven banks that reported a treasury-related segment. As a percentage of total revenue, ICBC's treasury operations segment was relatively consistent (i.e. the segment accounted for 10% to 15% of total revenue each year), while other banks' treasury segments show greater degrees of variation. In 2022, the treasury segment accounted for 6% to 15% of total revenue for the seven banks.


#4: Others Revenue Is Relatively Negligible With Some Variation In Trend Between Banks

Revenue from the Others segment is relatively negligible for seven of the eight banks that report a total revenue breakdown. The exception is the Agricultural Bank of China, where Others accounted for 7% of total revenue in 2022. In raw monetary terms and as a percentage of total revenue, Others revenue increased over the past decade for the Agricultural Bank of China, remained in a relatively consistent range for ICBC and PSBC, increased and subsequently decreased for the Bank of Communications, and fluctuated for the remaining four banks.



Agricultural Bank of China Total Revenue Breakdown By Segment
Data Sources: Company Annual Reports (click image to enlarge)

Bank of China Total Revenue Breakdown By Segment
Data Sources: Company Annual Reports (click image to enlarge)

Bank of Communications Total Revenue Breakdown By Segment
Data Sources: Company Annual Reports (click image to enlarge)

China Construction Bank Total Revenue Breakdown By Segment
Data Sources: Company Annual Reports (click image to enlarge)


China Merchants Bank Total Revenue Breakdown By Segment
Data Sources: Company Annual Reports (click image to enlarge)


China CITIC Bank Total Revenue Breakdown By Segment
Data Sources: Company Annual Reports (click image to enlarge)


ICBC Total Revenue Breakdown By Segment
Data Sources: Company Annual Reports (click image to enlarge)

Note: percentages may not sum up to 100% exactly due to rounding



Industrial Bank

While Industrial Bank does not provide a segment breakdown, the bank does release a breakdown of its loans and deposits. In raw monetary terms, loans and deposits to both corporate and personal customers increased over the past decade. In percentage terms, corporate loans decreased from 79% of 2013 total loans to 52% of 2022 total loans, while personal loans increased from 21% of 2013 total loans to 41% of 2022 total loans. The remaining loans that are neither corporate loans nor personal loans are classified as discounted bills.


SPD Bank

SPD Bank does not provide a segment breakdown and only mentions revenue generated from its three different banking business lines in 2020. During the year, the bank's corporate banking business generated revenue of RMB61.9 billion (32% of total revenue), the retail banking business generated revenue of RMB73.3 billion (37% of total revenue), and the financial market and financial institution business generated revenue of RMB40.9 billion (21% of total revenue). The remaining 10% of total revenue are perhaps attributed to other business activities.


Total Revenue - Geographical Breakdown

We now compare each bank's revenue based on geographical breakdown.


The Bank of China, the Bank of Communications, China Construction Bank, and China CITIC Bank break down revenue as being generated from mainland China or overseas, with the overseas segment including Hong Kong Special Administrative Region (SAR).


The Agricultural Bank of China, ICBC, and SPD Bank report revenue as being generated from mainland China or overseas and others, with the latter including Hong Kong SAR as well as investments in domestic and overseas associates and joint ventures.


China Merchants Bank uses a three segment approach with a mainland China geographical segment, an overseas segment, and a subsidiaries segment, with the subsidiaries segment including both domestic and overseas businesses.


Industrial Bank does not report the amount of revenue generated overseas each year. The bank reports a northeast and other regions segment which includes branches in northeastern and other locations in mainland China, Hong Kong SAR, and Industrial Bank Financial Leasing (兴业金融租赁公司), a subsidiary which operates domestically. In 2022, the northeast and other regions segment accounted for 8.7% of total revenue.


PSBC only operates domestically in mainland China.


With the exception of the Bank of China, the remaining seven banks that do report a domestic versus overseas geographical breakdown generate more than 90% of total revenue from the mainland China market each year*. The percentage of total revenue generated in mainland China show a decreasing trend over the past decade, with minimal (i.e. 1% to 2%) decreases for some banks and larger (i.e. 4% or more) decreases for others. The Bank of China generated between 76% to 83% of total revenue from the mainland China market each year, with a generally fluctuating trend.


*as captured by the mainland China reporting segment, which understates the true revenue generated in the domestic market for the Agricultural Bank of China, ICBC, SPD Bank, and China Merchants Bank, since the mainland China segment reported by these banks do not include the effect of domestic subsidiaries, associates and joint ventures


Percentage Of Total Revenue Generated From Mainland China Segment For China's Top Ten Largest Banks
Data Sources: Company Annual Reports (click image to enlarge)

Note: the graph above shows the percentage of total revenue generated in mainland China as captured by the mainland China reporting segment


Operating Profit

We turn to look at each bank's operating profit and operating profit margin over the past decade.


With the exception of PSBC, there is a generally decreasing trend in profitability across the banks, with some banks experiencing relatively smaller drops and others experiencing much larger decreases. SPD Bank had the largest and most steady decline in profitability, with an operating profit margin that dropped from a high of 54% in 2013 to 30% in 2022. The Agricultural Bank of China had the least decline in profitability, dropping from a high of 46% in 2013 to a low of 40% in 2020 before bouncing back up to 42% in 2022.


Relatively speaking, ICBC seems to be the leader in terms of profitability over the past ten years, with China Construction Bank in second place from 2013 to 2020 and tied for first place with ICBC in 2021 and 2022. PSBC consistently had the lowest operating profit margin over the past decade, primarily due to high operating expenses classified as deposit agency fees and others. This is due to the bank's business model of being widely accessible to customers in rural areas, which requires the opening of many branches with each branch perhaps being less profitable or cost effective compared with similar bank branches in cities. PSBC's operating profit margin ranged between a low of 20% in 2018 to a high of 27% in 2022, compared with margins in the 30% to 50% range for other banks.


In 2022, ICBC and China Construction Bank had the highest operating profit margins of 50%, followed by China Merchants Bank and Industrial Bank at 48%, the Bank of China at 46%, the Agricultural Bank of China at 42%, the Bank of Communications at 36%, China CITIC Bank at 34%, SPD Bank at 30%, and PSBC at 27%.



Operating Profit of Top Ten Largest Chinese Banks
Data Sources: Company Annual Reports (click image to enlarge)

Operating Profit Margin of Top Ten Largest Chinese Banks
Data Sources: Company Annual Reports (click image to enlarge)

Net Profit

In this final section, we present each bank's annual net profit and net profit margin for the past ten years.


The banks' net profit margins are relatively more stable over the past decade compared with their operating profit margins, which exhibited a general decline. The difference between operating profit and net profit for each bank is primarily attributable to the bank's share of profits of associates and joint ventures and income tax expense.


The relative ranking of each bank's net profitability is similar to the relative ranking for operating profitability. Specifically, ICBC consistently had the highest net profit margin over the past decade, while China Construction Bank also performed relatively well, with the second highest net profit margin in eight of the past ten years and equal net profit margins as ICBC in 2020 and 2022. PSBC consistently had the lowest net profit margin over the ten years, ranging from a low of 18% in 2015 to a high of 25% in 2022, compared with margins in the 30% to 40% range for most of the other banks.


In 2022, ICBC and China Construction Bank had the highest net profit margins of 43%, followed by Industrial Bank at 42%, China Merchants Bank at 41%, Bank of China at 38%, the Agricultural Bank of China at 36%, the Bank of Communications at 34%, China CITIC Bank at 30%, SPD Bank at 28%, and PSBC at 25%.



Net Profit of Top Ten Largest Chinese Banks
Data Sources: Company Annual Reports (click image to enlarge)

Net Profit Margin of Top Ten Largest Chinese Banks
Data Sources: Company Annual Reports (click image to enlarge)
 

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