Invest in Banks - US, CN, EU vs SGP, bigger is better?
While doing my usual readings, I stumbled upon the S&P Global’s - The world's 100 largest banks, 2023 edition.
Think the 2024 edition will not be out until April 2024.
Honestly, I was interested to find out whether Singapore’s banks made it in the Global ranking? (see below)
Yes, Singapore banks are parked under "Others". Hee hee.
Ok, we do not have our own “pie” sector in the chart, meaning not the biggest by assets.
Does that mean that we are not there, on the global stage? Hmm… don’t think so.
In terms of ranking, this was where the 3 local banks stood in 2022. (see below)
**Remember:
The world as a whole is coming out from the Covid pandemic onslaught with most economies “destroyed” by the pandemic as borders were shuttered, working confined to home.
Not to mention the Russia/Ukraine war into its second anniversary on 23 Feb 2024. This war created its own supply chain issue because both warring countries’ exports were hampered.
S&P Global - The World's 100 largest banks : Top 20 Extracts
S&P Global report - extracts:
China.
In 2022, Chinese banks extended their dominance as the world's largest lenders, bucking declines in balance sheets among global peers, amid rate hikes and slowing economic growth.
Number of Chinese banks in S&P Global Market Intelligence's ranking of the world's 100 largest banks by assets rose to 20, from 19 (2021), after Bank of Ningbo Co. Ltd. joined the list at No. 89.
Chinese largest banks continued to hold the top four slots.
Aggregate assets rose 2.4% at the 19 Chinese banks that appeared on both years' lists.
The top 4 largest Chinese banks expanded their assets +4.1% to $19.871 trillion from $19.081 trillion in the 12 months ended Dec. 31, 2022.
Agricultural Bank of China Ltd. led the big four's gains with a +7.5% increase.
Japan & US.
In 2022, total assets at the 8 Japanese lenders on the list shrank -8.8%.
Assets at the 11 ranked US banks fell -0.4%, based on market intelligence data.
Bigger means better ?
Taking all things into perspective, it sets me thinking - does bigger always mean better?
Just look at China and its current economic mess that existed for a while now (exacerbated by the way the Covid pandemic was manhandled in The Kingdom).
The lack of “proper” banking framework, governance, in a centrally planned economy, led to over extended lending in construction industry, effectively kickstarting China’s woes.
China is not alone in this respect.
US also has its fair share of un-glamourous history in its financial sector.
March 2023 - US banking debacle. Its ripple effect caused Credit Suisse to crash. Luckily the extent of damage was limited and contained within US & Europe.
The 2008 subprime mortgage crisis (due to banks’ excessive risks taking, lax regulations & lack of transparency) snowballed into the 2008 Global Financial Crisis can be attributed to US banks’ doings.
Quite certain that Japanese and European banks (UK inclusive) have their fair share of horror stories to recount.
However, this is not a witch-hunt post, rather questioning and co-relating a bank’s size to its effective governance and accountable profits.
My viewpoint: (mine & mine only)
I think the S&P Global report needs contextualization in order for the report to be useful.
For example, interpret the report in conjunction with each country’s economy & its economic cycles.
Ranking during economic stress:
Top spot does not equal top profitability: Large assets in troubled economies might reflect stagnant economies with high loan portfolios that haven't been repaid. So, the top spot doesn't guarantee high profitability.
Profits vs. size: Profitability depends on factors like loan defaults, operating expenses, and interest rates. A smaller, efficient bank in Singapore might outperform a larger bank in a struggling economy.
Regional nuances: Ranking considers total assets, not profit per se. Banks in stable economies like Singapore might focus on regional growth, leading to lower asset size but higher profitability.
Comparing troubled economies vs Singapore:
Risk vs. reward: Banks in troubled economies might have riskier loan portfolios (higher potential returns, but also higher defaults). Singaporean banks prioritize stability and lower risk, potentially leading to lower but steadier profits.
Interest rates: Rising rates in troubled economies might benefit banks initially, but higher defaults can erode gains. Singapore's stable rates offer predictable income streams.
Growth potential: Banks in recovering economies might have higher growth potential, but riskier expansion. Singaporean banks might focus on regional growth in stable markets.
In summary:
Ranking provides a size comparison, but profitability and risk profiles differ vastly across economies.
Local banks might not be the "largest," but their focus on (a) stability and (b) regional growth could translate to higher and more sustainable profits in the long run.
Have to keep reminding myself that economic cycles are dynamic, and rankings can shift quickly.
Always consider all factors when evaluating bank performance beyond just their size in a specific ranking.
Parting thoughts:
Will definitely look at local banks and consider adding to either $OVERSEA-CHINESE BANKING CORP(O39.SI)$ or $UNITED OVERSEAS BANK LIMITED(U11.SI)$ again. Viva la Singapore banks !
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