China Merchants Bank tops financial performance ranking of mainland lenders

China Merchants Bank Co. Ltd. topped the inaugural S&P Global Market Intelligence ranking of mainland China-headquartered lenders based on financial performance.

The Shenzhen-based midsize lender was followed by Ping An Bank Co. Ltd., also headquartered in Shenzhen, and Nanjing-based Bank of Jiangsu Co. Ltd. in the ranking of the 50 largest publicly traded banks in mainland China by assets as of Dec. 31, 2023, and covered by S&P Global Market Intelligence.

In this analysis, companies were ranked according to seven weighted financial metrics: return on average equity (16%), net interest margin (16%), noninterest income/average assets (16%), cost-to-income (16%), problem loan ratio (16%), liquidity coverage ratio (10%) and common equity Tier 1 ratio (10%). The mean for each metric was identified across the sample, and standard deviations from these means were calculated for each metric for each institution and aggregated to determine a relative performance score. Scores for each metric were also capped to help normalize the data.

Banks in mainland China face margin pressures as the central bank maintained an easing bias in an effort to support economic growth. The People's Bank of China cut its five-year loan prime rate, the mortgage benchmark, to an all-time low of 3.95% in February. The real estate sector, which accounts for nearly a quarter of mainland China's gross domestic product, faces a downturn as a high number of unsold housing units and slow demand put pressure on builders.

The biggest banks in mainland China by assets — Industrial and Commercial Bank of China Ltd., Agricultural Bank of China Ltd., China Construction Bank Corp. and Bank of China Ltd. — posted year-over-year declines in earnings in the January-to-March quarter, though the declines were shallower than the previous quarter. ICBC, the world's biggest lender by assets, improved its net interest margin (NIM) by 2 basis points compared with the earlier quarter but the other three posted another quarter of declines.

Among the big four, ICBC was ranked 22nd, China Construction Bank was 18th, Bank of China 27th and Agricultural Bank of China was ranked 36th. Bank of Communications Co. Ltd. took the 34th place. Along with the big four, the lender is one of the five mainland Chinese lenders identified as global systemically important banks (G-SIBs) by the Financial Stability Board and the Basel Committee on Banking Supervision.

Overall 28 lenders had positive total scores that ranged from 1.10 for China Merchants Bank to China Zheshang Bank Co. Ltd. with 0.02. Bank of Qingdao Co. Ltd. scored zero, while the remaining 21 lenders had negative scores in the Market Intelligence analysis. Banks received a positive score if a performance metric was better than the top 50 average and a negative score if the metric underperformed.

Shengjing Bank Co. Ltd., based in Shenyang, the capital of China's Liaoning province, ranked last among the 50 lenders in the sample, with a Market Intelligence performance score of negative 1.65. Harbin, Heilongjiang-based Harbin Bank Co. Ltd. with a score of negative 1.05 and Tianjin-based China Bohai Bank Co. Ltd. with negative 1.00 were also at the bottom of the ranking.

Bank of Chengdu Co. Ltd. had the highest return on average equity (ROAE) at 17.51%, while Shengjing Bank had the lowest ROAE of 0.95%, the data shows. The median ROAE for the 50 banks was 9.25%. Jiangsu Changshu Rural Commercial Bank Co. Ltd. posted the highest NIM at 2.82%, compared with the group median of 1.67%. Harbin Bank's problem loans ratio was the highest among the sample at 2.80%, while Bank of Chengdu's was the lowest at 0.70%. The group median for problem loans ratio was 1.36%.