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China Built Banking Dominance as Credit Crisis Sunk the West

China's major banks surpassed their once-dominant U.S. and European peers in the decade following the credit crisis, thanks to explosive growth that shows little sign of slowing.

China is now home to six of the world's 25 largest banks by assets. This includes the four largest ever — Industrial & Commercial Bank of China Ltd., China Construction Bank Corp., Agricultural Bank of China Ltd., and Bank of China Ltd. — according to S&P Global Market Intelligence data. Their most recent annual performance suggests this fast-paced growth is poised to continue.

China's ascent in the global rankings is even more pronounced thanks to a decline in total assets among many major western banks as they worked to deleverage in the wake of the crisis and tightened lending amid a broader economic contraction.

Royal Bank of Scotland Group PLC, for example, was far and away the world's largest bank with more than $3.66 trillion in assets at year-end 2007, partially as a result of the $103.83 billion consortium acquisition of ABN AMRO Holding NV that closed earlier that year. By year-end 2017, in the wake of massive credit losses and government intervention, RBS had a little more than a quarter of that amount in total assets.

Other big European banks have also pared their total assets in the years since the crisis. Deutsche Bank AG, the No. 2 largest bank in 2007 with more than $2.81 trillion in assets, now has slightly over $1.77 billion. BNP Paribas SA and Barclays PLC, the third- and fourth-largest banks in 2007, have also shrunk.

In the U.S., Citigroup Inc. was the largest bank in 2007 and the No. 7 biggest in the world with $2.187 trillion in assets. By the end of 2017, Citi had reduced its assets to $1.842 trillion.

By contrast, Beijing-based ICBC, the current largest bank in the world, has more than tripled its total assets over that time frame; China Construction, Agricultural Bank of China, and Bank of China, none of which was among the 25 largest banks 10 years ago, have grown their assets by even larger percentages.

The changing asset sizes among these banks is partly a reflection of their respective countries' economic growth. The credit crisis caused multiyear recessions for most western countries. And while China's economy also slowed materially in the years since the crisis — to a nominal 8.91% in 2017 from 22.83% in 2007 — its GDP growth never fell into negative territory and in every year grew at a pace well ahead that of the U.S., U.K. and the eurozone.

Chinese banks' balance sheets have grown at a faster pace than the country's economic growth rate, which has raised some red flags. Last year, a group of international banking regulators noted that China was among a small group of countries that had more than one warning indicator for a financial crisis, including its rising credit-to-GDP gap.

But despite regulatory efforts in the past year to rein in that lending growth, all of the top four Chinese banks posted asset growth rates that averaged above 7% in 2017.

By comparison, total asset growth at Japan's Mitsubishi UFJ Financial Group Inc., the world's fifth-largest bank, was 3.46% over that period, while growth at JPMorgan Chase & Co., the largest bank outside of Asia, was just 1.71%.