Growth of European Network of Chinese Banks

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1 China Goes Global Growth of European Network of Chinese Banks Steven Gao, CFA Deputy Head Investment Banking Department., ICBC (Europe) Spain Branch

2 China banking industry is in oligopolistic competition 2014 China Banking Industry Shares of Revenue 2014 China Banking Industry Revenue & 3-Year CAGR Others; 42% ICBC; 17% CCB; 15% % 66 14% 61 16% 54 13% 2014 billion 3-Y CAGR 24% 18% 19% 19% 16% 14% Industry Ave. 14% % 25% 20% 15% 10% 5% ABC; 14% 10 BOC; 12% 0 0% Source: S&P Capital IQ The 4 biggest banks together hold a 58% share. China Banking industry is still growing rapidly, 3-year CAGR is 14%. 2nd Tier banks are growing even faster. 2

3 Commercial banking is the dominating business Business Segments of Big 4 Chinese Banks 100% 90% 80% 1% 2% 2% 15% 14% 10% 6% 15% 3% 14% Corporate banking, personal banking and Treasury operations are the dominating business segments. Other businesses include investment banking, private 70% 60% 38% 38% 40% 42% 39% banking, assets management, insurances, etc. BOC s other business is leading among the big 4. 50% 40% 30% 20% 10% 0% 45% 46% 49% 45% 37% ICBC CCB ABC BOC Big 4 Total Others Treasury Operations Personal Banking Corporate Banking Source: S&P Capital IQ 3

4 Chinese banks have been going globally North America Europe # of Countries # of Oversea Branches BOC ICBC CCB ABC Latin America Source: Company Annual Reports 2014 Middle East Asia Pacific Africa BOC has the most extensive global network. ICBC is catching up with BOC. 4

5 Chinese banks are following steps of Chinese companies worldwide Import & Export in trillion RMB % of GDP 40,0 35,0 60% 64% 65% 63% 57% 70% 60% 30,0 25,0 20,0 33% 34% 32% 42% 39% 34% 35% 32% 34% 40% 39% 43% 52% 44% 50% 50% 47% 46% 50% 40% 15,0 30% 10,0 20% 5,0 10% 0, % International business have become more and more significant. We provide services primarily for Chinese companies overseas. Source: National Bureau of Statistics of China 5

6 ICBC Spain branch was the first Chinese Bank in Iberian Peninsula Development Process Main Partners

7 Chinese banks has advantages over top banks in Euro Zone Chinese Banks vs. Euro Zone Top Banks 2014 Total Assets billion ROA% ,4% 1,4% 1,2% 1,2% 0,2% 0,3% 0,1% 0,2% 0,5% 0,3% 0,2% 0,2% 0,5% 0,2% 0,2% 1,6% 1,4% 1,2% 1,0% 0,8% 0,6% 0,4% 0,2% 0 0,0% Chinese banks have larger scales with more extensive networks globally. Chinese banks have even higher profitability. Chinese banks are backed up with strong Chinese economy. Source: Company Annual Reports 2014 Chinese banks are increasing shares of new businesses, such as investment banking, private banking, insurance, assets management, etc. 7

8 Chinese banks are being more influential in the world Chinese Banks vs. World s Top Banks 2014 Net Income $billion ROA% ,4% 1,4% ,2% 1,2% ,4% 0,9% ,6% 15 1,1% 11 0,4% 0,4% 8 7 0,2% 0,2% 0,3% ,6% 1,4% 1,2% 1,0% 0,8% 0,6% 0,4% 0,2% 0,0% -0,2% -0,4% In terms of net income, Chinese big-4 banks are the top ones in the world. Chinese banks have higher ROA than other world s top banks. Chinese banks are still enjoying high growth rate of revenue and net income. Source: Company Annual Reports 2014 In 2014 ICBC and BOC were set for reprieve in FSB s Total Loss Absorbency Capacity plan, which meant that Chinese banks are qualified for world s top standard. Asian Infrastructure Investment Bank (AIIB) will lead China Banking Industry to a new stage of globalization. 8

9 Japanese banks suffered from the Lost Decade in the 1990s ,0 20,0 10,0 0,0-10,0-20,0-30,0-40,0 Japanese Top 4 Banks Revenue in EUR billion Japanese Top 4 Banks Net Income in EUR billion The Lost Two Decades The Lost Decade Mizuho Mitsubishi Sumitomo Mitsui Resona Mizuho Mitsubishi Sumitomo Mitsui Resona At the beginning of the 1990s, Japanese banks were in the top of the world. The 1990s economic crisis was a disaster to Japanese banks. Japanese top banks had not fully recovered until Source: S&P Capital IQ 9

10 Chinese banks are likely to avoid the path of Japanese banks in the 1990s Japan s Lost Decade VS. China s Great Rejuvenation Tokyo Shanghai Japanese banking industry in the 1990s Very high debt ratio of private companies and large amount of unregulated loans. Although large, low profitability of banks. Central bank failed to inhibit the over-growth of credit. Government s week support. Before the 1990s, GDP growth around 4%. Chinese banking industry in the 2010s Slowed down loans to private sector. Banks credit loss will be covered by the high speed growth of both revenue and profit. Central bank enhanced control of the credit growth. Government s strong support. Before 2015, GDP growth higher than 7%. 10

11 Thank you! 11