The ranking is based on tier 1 capital, a key measure of banking strength
The UK’s largest bank, which has strategically shifted capital to areas garnering higher returns such as Asia and wealth management, moved up one position to 8th in the global ranking and increased its Tier 1 capital by 7.96%, to $160.2bn. It also recorded a 9.91% increase in assets.
Of the top five UK banks, Lloyds Banking Group (ranked 3rd) recorded the highest percentage increase in Tier 1 capital (15.27%) year-on-year, while Barclays (ranked 2nd) topped the group in asset growth (19.93%).
However, all five banks saw declines in pre-tax profits year-on-year: -34.2% for HSBC; -28.72% for Barclays; -71.72% for Lloyds Banking Group; and -56.56% for Standard Chartered (ranked 5th). NatWest Group, in fourth place in the country ranking, moved from profit to loss.
Overall, the UK saw an aggregate 53.08% drop in profits across its banks included in the ranking.
Western Europe had another difficult year due to low economic growth and the interest rate environment hitting the profitability of the region’s biggest lenders. Of the largest European economies, banks’ aggregate pre-tax profits shrank by 43.71% in Germany, 75.72% in Italy and 47.67% in the Netherlands, while France experienced a more modest decline of 11.61%. Spain recorded negative pre-tax profits at an aggregate level, with two of its largest banks, Banco Santander and Bankia, moving from profit to loss in this period (see Table 2).
The western European region now contributes 10.30% of the world’s profits, based on net income data, down from 16.37% last year and nearly one third a decade ago. Return on capital is the lowest for any region – at 3.10% (see Table 3).
Overall, the world’s largest banks have withstood the pressures from the Covid-19 pandemic, adding 12.7% to their collective Tier 1 capital to reach the highest ever level of $9.9 trillion. In addition, total assets increased by 16.0%, to $148.6 trillion, while the deposit base expanded by 17.1%, to $93.9 trillion.
Compared to the global financial crisis in 2007-09, it appears that there is more resiliency in the banking sector. Overall, the Top 1000 World Banks increased the allowance for loan losses (or the reserve to cover bad debts) by 25.8%, to $1.7 trillion, which is a larger increase than the aggregate loan book, which grew by 11.4%. However, as many jurisdictions have extended their Covid-19 support packages into 2021, the true impact of the pandemic has not yet hit the banks’ loan books.
Furthermore, while the Top 1000’s combined profits dropped by 19.2% year-on-year, it is not as catastrophic when compared to the fallout from the financial crisis, when profits plummeted 85.3% in 2009.
China continues to be the engine of growth for the world’s banking industry, increasing aggregate Tier 1 capital and total assets by 18.6% and 18.4%, respectively. China, with 144 banks in the ranking, now holds almost double the amount of Tier 1 Capital ($2.96 trillion) as the US ($1.58 trillion), with 178 banks in the ranking. In addition, profits continued to grow in China by 5.2% year-on-year, while falling by 31.5% in the US and 41.8% in western Europe (see Table 4).
The Asia-Pacific region generated more than half (55.1%) of the world’s profits, based on net income data, up from 43.5% in the 2020 ranking, and was the only region to increase its share of profits.