Outgunning the West
China's Big Four banks continue to post higher returns than their US and European rivals, with regulations helping to cement their positions
Mainland China's largest banks capped a sixth year of record profits by posting a 21 per cent average return on equity (ROE), more than twice the rate earned by US and European competitors led by JP Morgan Chase.
Government controls on interest rates and limits on foreign banks' operations helped buoy profits at China's state-owned lenders even as the economy slowed. Western rivals, in contrast, were weighed down by regulatory probes and a crackdown on proprietary trading. JP Morgan was hurt by US$6.2 billion of trading losses, while HSBC joined banks fined for offences from rigging rates to money laundering.
"It's a very regulated market" in China, said Mike Werner, an analyst at Sanford C. Bernstein. "It's very difficult for foreign banks to expand and that has essentially assured the domestic banks of getting a very healthy portion of the overall business."
China's banks boosted credit last year to fend off slowing profit growth and the threat of rising defaults after the economy expanded 7.8 per cent in 2012, the slowest pace in 13 years. Growth may accelerate this year and next as the nation ushers in new leaders who plan to continue with reforms, according to the Organisation for Economic Co-operation and Development.
China's cabinet yesterday said it will take steps to loosen state control over interest rates and the yuan.
Shares of the four biggest Chinese banks - ICBC, China Construction Bank, Agricultural Bank of China and Bank of China - have gained 29 per cent in Hong Kong trading since mid-September as the United States announced a third round of quantitative easing and investors bet on an economic recovery.