HDFC Bank sees strong market cap growth; Japanese megabanks ride investor wave

India's HDFC Bank Ltd. saw its market capitalization shoot up more than 21% to $139.28 billion in the quarter ended Sept. 30, 2023, as it combined with its parent.

This was the biggest increase in the quarter, which saw the lender climb to 4th position from 5th in a list of the top 20 banks by market cap in Asia-Pacific compiled by S&P Global Market Intelligence. Japanese banks remained as some of the strongest performers in the region in the quarter, having ridden the wave of high investor interest in the country's equity so far this year.

HDFC Bank's market cap growth came after its merger with its parent, Housing Development Finance Corp. Ltd., became effective July 1. The private-sector lender's market cap jumped 21.63% during the third quarter, even though its share price declined as investors feared the combined entity to be less efficient than before. After an initial spike, the bank's share price has fallen just shy of 11% since the merger.

The lender reported healthy growth in deposits and its loan book. Nomura analysts, however, have flagged pressures from reserve requirements and higher operating expense ratios.

Indian lenders have, overall, grown their market capitalization on the back of improved metrics in recent quarters, better preparing them for a challenging global environment. The country's banks are likely to attract investors looking for better returns as higher credit growth, improved margins and stable asset quality boost lenders.

Japanese gains

Japan's Sumitomo Mitsui Financial Group Inc. grew its market capitalization 19.29% in the July-to-September quarter to $65.62 billion, propelling the megabank to 11th in the Market Intelligence ranking list. The bank was in 14th spot three months prior. Rival Mitsubishi UFJ Financial Group Inc. saw a 19.11% gain in market capitalization to $102.2 billion and remained 8th on the list.

The Japanese megabanks' strong performance was in line with the overall robust trend in the country's stock market so far in 2023. The Nikkei 225 index and Tokyo Price Index both gained around 24% through Sept. 30 as most analysts expect the central bank to abandon negative interest rates in 2024.

The reaction of the Japanese equity market to the prospect of an early move away from the country's negative interest rates suggests momentum remains healthy, RBC Wealth Management said.

Market capitalization is measured in local currencies and translated to US dollars by Market Intelligence.

Chinese banks still dominate

Chinese megabanks retained the top three positions in the ranking during the quarter, even as two of the lenders posted declines in market cap. Industrial and Commercial Bank of China Ltd., Agricultural Bank of China Ltd. and China Construction Bank Corp. kept their ranks as the biggest banks in Asia-Pacific by market capitalization.

ICBC's market cap declined 4.92% during the quarter, while China Construction Bank posted the steepest decline among regional peers with a fall of 12.18% to $143.98 billion. Bank of China Ltd. slipped to the 5th position with a 6.24% market cap fall, the data shows.

"Chinese banks, especially the large state-owned lenders, have been squeezed on their net interest margins amid the falling interest rate environment in the country," said Michael Zeng, banking analyst at Daiwa Capital Markets. This puts downward pressure on their earnings and eventually on banks’ share prices.

The Chinese equity market could remain "somewhat volatile in the short term," according to analysts at RBC Wealth Management. They noted that Chinese economic data showed signs of improvement in August and there is room for additional stimulus in the fourth quarter, which could help revive the largest economy in the region.

Mixed bag

All the so-called big four Australian banks made the ranking, with National Australia Bank Ltd. and ANZ Group Holdings Ltd. locking in strong quarter-over-quarter growth in market cap to $58.55 billion and $49.27 billion, respectively. Commonwealth Bank of Australia and Westpac Banking Corp. posted small declines in market cap.

Australia and New Zealand continue to deal with higher interest rates, causing some borrowers to face strains from both increased costs of living and mortgage repayments, S&P Global Ratings said in a Sept. 27 report.

Singapore's DBS Group Holdings Ltd. also showed strong growth in its market cap in the third quarter. The biggest bank by assets in Southeast Asia saw its market cap rise 6.98% during the quarter to $63.54 billion, though it slipped one notch in the Market Intelligence ranking.

Singaporean banks have benefited from rising interest rates since early 2022 and their earnings in the first half exceeded expectations, according to analysts. However, Bank chiefs flagged a more challenging second half and earnings could decrease, unless there is a significant increase in credit demand.