Major Asian banks see efficiency decline in Q3 as inflation drives costs up

Efficiency declined for many major Asia-Pacific banks in the July-September quarter, as personnel and energy costs increased on the back of rising inflation.

Many Chinese banks also reported modest increases in their cost-to-income ratios in the third quarter, but for a different reason. A slower revenue growth from lending activities and fee-based services amid an economic downturn and multiple interest-rate cuts in the country drove the ratios higher.

The overall ranking of efficiency among the region's 50 largest banks by assets was largely similar to the previous quarter, according to S&P Global Market Intelligence. Japanese and Indian banks reported some of the highest cost-to-income ratios, Chinese lenders were on the other end of the spectrum, and Singaporean and South Korean banks were in between.

"The best-performing banks will have a net income structure with low sensitivity to interest rates and risk costs, and they should target a cost-to-income ratio of 35 to 40%," McKinsey wrote in its 2022 Global Banking Annual Review released Dec. 1.

Employee costs push Sumitomo Mitsui Trust higher

Japan's Sumitomo Mitsui Trust Holdings Inc. topped the list with a cost-to-income ratio of 66.44%, up 842 basis points from a year earlier. The group said Nov. 18 the substantial rise in expenses was driven by investments in human capital — increased incentives for employees to participate in the stock ownership plan and a new stock compensation plan for all staff — and IT systems in addition to expenses linked with gross business profit increases.

The Japanese group was followed by State Bank of India, which ranked second on the list despite a 151-basis-point year-over-year decline in its cost-to-income ratio.

China Minsheng Banking Corp. Ltd. reported the largest year-over-year increase in the ratio among Chinese lenders, up 899 basis points at 43.27%. Its ratio was the second-highest among the nation's lenders after Postal Savings Bank of China Co. Ltd., whose efficiency ratio rose 163 basis points to 59.01% from a year ago.

China's Bank of Jiangsu most efficient lender

The most efficient lender in the pack was China's Bank of Jiangsu Co. Ltd., whose ratio rose 613 basis points to 21.94% as of Sept. 30 from a year ago.

Meanwhile, each of DBS Group Holdings Ltd., Oversea-Chinese Banking Corp. Ltd., Shinhan Financial Group Co. Ltd. and Hana Financial Group Inc. logged a more than 500-basis-point year-over-year improvement in the efficiency ratio during the third quarter, Market Intelligence data show.