S&P Global Offerings
Featured Topics
Featured Products
Events
S&P Global Offerings
Featured Topics
Featured Products
Events
S&P Global Offerings
Featured Topics
Featured Products
Events
Banking & Capital Markets
Economy & Finance
Energy Transition & Sustainability
Technology & Innovation
Podcasts & Newsletters
Banking & Capital Markets
Economy & Finance
Energy Transition & Sustainability
Technology & Innovation
Podcasts & Newsletters
S&P Global Offerings
Featured Topics
Featured Products
Events
23 Jun, 2024
By Aditya Saroha and Cheska Lozano
The operating efficiency of lenders in mainland China and India eroded over the 12 months ended March 31 due to rising operating expenses.
Indian banks' aggregate cost-to-income ratio, a key measure of operating efficiency, rose to 57.08% for the 12 months ended March 31, from 48.65% in the previous year, according to S&P Global Market Intelligence data. The median cost-to-income ratio of lenders in mainland China increased to 33.13% from 31.64%.
Margin pressures
The cost-to-income ratio measures a bank's operating expenses as a percentage of its income, and a higher ratio indicates lower efficiency.
Lenders in mainland China face pressure on their net interest margins (NIMs) as the People's Bank of China maintained an easing bias to support economic growth and help mitigate a downturn in the real estate sector, which accounts for 25% of the country's GDP. The central bank cut its five-year loan prime rate, the mortgage benchmark, to a record low of 3.95% in February to boost home sales.
The world's second-largest economy expanded 5.3% year over year in the first quarter, staying ahead of the government's full-year growth target of about 5%. Still, analysts expect the central bank to stay accommodative to support the economy.
Most efficient
Despite a rise in the median cost-to-income ratio, mainland China is still home to several of the most efficient banks in Asia-Pacific.
Bank of Shanghai Co. Ltd. was the most efficient of the region's 50 largest banks by total assets in the year ended March 31. Its cost-to-income ratio fell to 24.05% from 24.98%. In total, 23 mainland China banks featured on the list, and the cost-to-income ratios of 18 of them were under 36%, the data shows. Industrial and Commercial Bank of China Ltd., the world's largest bank, had a ratio of 29.80% in the 12 months ended March 31.
Six of the 10 least-efficient banks in Asia-Pacific were in Japan. Sumitomo Mitsui Trust Holdings Inc.'s cost-to-income ratio increased 20.94 percentage points to 81.56% in the year ended March 31, Market Intelligence data shows. The ratios of other megabanks, including Mizuho Financial Group Inc. and Sumitomo Mitsui Financial Group Inc., remained well above 50%.
The median cost-to-income ratio of Japanese lenders improved to 61.84% in the year ended March 31. The ratio remains highest in the region. The Bank of Japan ended its negative interest rate policy in March, with further rate hikes expected this year. Higher rates will improve banks' net interest margins by widening the gap between lending rates and borrowing costs, aiding in improvement in the operating efficiency.