The market capitalization of most of the largest Chinese banks declined in the second quarter and underperformed local benchmark indexes, amid lingering uncertainties related to the pandemic and Beijing's renewed efforts to unwind excessive leverage.
In the three months ended June 30, Industrial & Commercial Bank of China Ltd., the largest bank in the world by assets, saw its market cap drop 8.17% from the previous quarter to $266.83 billion, according to data compiled by S&P Global Market Intelligence. The lender continued to sit atop the list of the 20 largest Asia-Pacific banks in the second quarter.
Industrial Bank Co. Ltd. logged the biggest quarter-over-quarter decline in market cap on the list, falling 14.69% to $66.11 billion and slipping three spots to 12th place. China Construction Bank Corp., Bank of China Ltd. and Postal Savings Bank of China Co. Ltd. fell one rank each to third, sixth and ninth place, respectively. Agricultural Bank of China Ltd. remained fourth on the list despite a 9.91% drop in market cap.
Beijing has reportedly asked banks to slow their loan growth this year to preempt systemic risk, and appears more reluctant to bail out state companies that have high default risk. Chinese banks are also facing continued pressure on their net interest margins as they heed the government's directive to lend more and at lower interest rates to vulnerable borrowers, based on the so-called "interest concession policy."
"With the ongoing uncertainties, it is also hard to expect China to hike policy rates anytime soon, meaning net interest margin will continue to be compressed," said Gary Ng, a Hong Kong-based economist at investment bank Natixis.
Cindy Wang, an analyst at DBS, expects the shares of Chinese banks to be "range bound" in the second half of 2021. She said overall loan growth will likely remain solid, albeit slightly slowing, and that will help "offset NIM pressure, strong fee income from wealth management and agency fee, and improving asset quality trend." She also said "the worst credit downcycle has passed" in 2020.
Not all Chinese banks fell amid the headwinds. China Merchants Bank Co. Ltd. rose one rank to second place after its market cap grew 6.76%. Ping An Bank Co. Ltd. and Bank of Communications Co. Ltd. also saw their market cap gain 2.77% and 2.53%, respectively.
State Bank of India made it to the list in the quarter — at the 19th slot — after its market cap rose 15.07% quarter-over-quarter to $50.33 billion. The state-owned lender's stock has performed well in the past nine months, Nomura analysts said, adding that improvements in the duration gap between assets and liabilities as well as the loan-deposit ratio are positives for the bank's net interest margin.
Meanwhile, Commonwealth Bank of Australia reported the highest gain, a 15.99% growth, taking its market cap to $132.71 billion and climbing one notch to the fifth position. Two other members of Australia's so-called "Big Four" banks, Westpac Banking Corp. and National Australia Bank Ltd., logged quarter-over-quarter increases of 5.74% and 0.85%, respectively. Australia and New Zealand Banking Group Ltd. saw a 0.11% decrease in its market cap for the quarter.
During the second quarter, the S&P/ASX 200 grew 7.69%, while Japan's TOPIX Index fell 0.53%. Meanwhile, the Hang Seng Index and the SSE Composite Index rose 1.58% and 4.34%, respectively.