One in three Chinese banks fails to create economic value, McKinsey report says
Of the 40 lenders monitored by consulting firm just 27 added value in 2016, but other experts say the research paints only half a picture
Are Chinese banks value creators or destroyers? That is the question being asked in financial circles after a report published last week by consulting firm McKinsey & Co claimed that a third of China’s lenders failed to create any economic profit last year.
Of the 40 major banks the company monitors, 13 failed to generate any economic value added (EVA), the company said in a report published on its website on Friday.
EVA is a gauge of financial performance based on the residual wealth calculated by deducting the cost of capital from operating profit, adjusted for taxes.
The 40 lenders created a combined economic profit of 333.5 billion yuan (US$50.27 billion) in 2016, down 32 per cent from the previous year, while their average risk adjusted return on capital fell to 20.4 per cent from 18.2 per cent in the year, McKinsey said, basing its calculations on data from the lenders’ financial reports.
The top three value creators were Industrial and Commercial Bank of China, China Construction Bank and Bank of China, while the worst performers were Postal Savings Bank of China, China Guangfa Bank and China Citic Bank, it said.