China’s big four banks saw market value growth in Q4

But capital ratios and loan-to-deposit ratios declined during the year.

The market value of China’s big four banks grew by 4% to 8% in the last three months of 2023, although loan-to-deposit ratios declined during the period.

Deposits grew faster than loans for ICBC, Agricultural Bank of China, and Bank of China, according to a report by data and analytics company GlobalData.

Only China Construction Bank balked the trend and instead registered a positive ratio.

All four banks experienced a decrease in their capital ratios in Q4, with reductions ranging from 22 percentage points (ppt) to 95 ppt in their CET1 ratios. 

Outside of the big four, China Merchants Bank was noted for witnessing a 13.8% fall in its market capitalisation during the quarter, to $96.9m. GlobalData blamed it for reduced yields from interest-earning assets, which in turn was a result of “multiple downward adjustments” to the loan prime rate.

“Additionally, inadequate effective credit demands contributed to this decrease. Simultaneously, the prevailing low market interest rates led to a decline in the yields of marketized assets, such as bond investments and discounted bills.

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Globally, the world’s top 25 banks saw their aggregate market capitalisation increase by 11.1% to $3.61t quarter-on-quarter in Q4 2023 ending on 31 December. They benefitted from the recovery in risk appetite brought about by expectations over interest rate cuts, GlobalData noted.

“Since November 2023, the market has started factoring in the cessation of interest rate hikes by the US Federal Reserve, along with potential rate reductions in 2024. Easing concerns over interest rate hikes have consequently retriggered the risk appetite of investors, resulting in a notable surge in the value of US bank stocks,” said Murthy Grandhi, company profiles analyst at GlobalData.

Notably, Charles Schwabb saw market capitalisation grow 26.2% during the quarter; whilst Al Rajhi Banking experienced a 28.1% growth in stock value.

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“The near-term projection indicates ongoing nominal growth to continue in lending across most regions, primarily driven by prevailing inflationary trends, albeit at a more subdued pace compared to 2022 and 2023,” Grandhi said. 

“However, a deceleration in global economic growth and sustained elevated interest rates will impact borrowers’ ability to repay loans, potentially resulting in increased impairments in 2024, as evidenced by rising NPL (non-performing loan) ratios,” he warned.