Big Bank "Three Kingdoms Killing": The latest competition between ICBC, CCB and ABC

New Finance Langya List

2024-04-10 08:25Published in Shanghai

In recent years, ICBC's position as a "cosmic bank" is still solid, and CCB has failed to form a significant differentiation advantage through retail development, and has been counter-killed by ABC in terms of volume. A competitive landscape closer to the "Three Kingdoms" has emerged.

Author: Dong Yunfeng

Editor: Ye Dong

Four years ago, the new financial Langya list published "Big Bank Competition: How Far is CCB from ICBC", which attracted a lot of attention, including some senior executives of large banks.

In the article "The Retail Finance Landscape of the Six Major Banks" published one year ago, we emphasized that in addition to ICBC and CCB, the retail strength and potential of ABC need to be further recognized by the market.

With the total assets of ABC achieving a historic overtake of CCB last year, the pattern of competition for hegemony of large banks has changed: from the peak duel between ICBC and CCB, it has evolved into a three-legged rivalry of ICBC, CCB and ABC.

CCB's phased weakening is mainly due to the headwinds of its retail-first strategy: as the "king of housing loans" and the leader of credit cards, the drastic changes in the property market and the downturn in household consumption have had a more significant impact on CCB. In China Merchants Bank and Ping An Bank, a similar story is staged.

On the other hand, the balance and stability of ICBC and the low-key and sinking of ABC make them more relaxed in this "marathon".

01

In terms of volume, ICBC has maintained its leading position among the large banks in recent years, and CCB has not only failed to narrow the gap with ICBC's total assets, but has been overtaken by ABC. Although ABC still lags behind CCB in terms of loan balance, it has surpassed the bank in terms of assets thanks to the ultra-rapid growth of deposits since 2022, becoming the second largest bank in mainland China.

In terms of profitability, ICBC's net profit has always maintained the first place, while CCB has stronger profitability, from net interest margin to ROA, which is the first of the three major banks, but the advantages are limited. Considering the slowdown in CCB's balance sheet expansion, the actual advantage is even weaker.

In terms of asset quality, the three major banks have been on a par in recent years, with extremely small gaps, with NPL ratios in the range of 1.3%-1.4% in the past two years. ABC's asset quality in 2023 will surpass that of ICBC and CCB, largely due to the faster pace of balance sheet expansion.

On the whole, ICBC's position as a "cosmic bank" is still stable, and CCB failed to form a significant differentiation advantage by focusing on retail, and was counter-killed by ABC in terms of volume.

A competitive landscape closer to the "Three Kingdoms" has emerged.

02

Among the major banks, CCB was the first to put forward the retail-first strategy, and shifted its development focus to retail business relatively early.

From 2009 to 2023, CCB's personal business profit accounted for 50.05% of the profit, and the proportion of its corporate business profit fell from 60.66% to 19.27%.

This kind of strength can be called "all in". Unfortunately, after more than 10 years of aggressiveness, CCB has not formed a substantial advantage in the retail field.

According to the data, in 2023, the pre-tax profit of CCB's retail business will be 194.9 billion yuan, only 1.2 billion yuan higher than that of Agricultural Bank of China.

In CCB's retail business, personal housing loans are close to 6 trillion yuan, accounting for more than 8% of the balance of personal loans. Due to historical reasons, CCB has a first-mover advantage in the field of housing finance, so the scale and quality of personal housing loans are larger, and the profitability is better.

However, the great changes in the property market have meant an unprecedented test for CCB. From 2020 to 2023, CCB's personal housing loans accounted for 26.76% of the bank's total loans, down from 34.82%. In addition to the shrinking earnings caused by the sharp cut in interest rates, mortgage credit risk is also rising, eroding this most solid earnings fundamental.

The same is true for credit card business. In the context of the overall shrinkage of the whole industry, the scale of CCB's credit card loans continued to expand, reaching nearly one trillion yuan by the end of last year, significantly ahead of ICBC and ABC. However, the sluggish credit card transactions and the rising non-performing rate have made the profit contribution of this business diminishing.

All of this is a challenge that all banks are facing. It's just that CCB has been more active in retail for many years, which has led to more pressure at the moment.

03

Standing at a crossroads, CCB's choice was to postpone the expansion of the balance sheet.

As of the end of 2023, ICBC's total assets were 44.7 trillion yuan, up 12.8% year-on-year, CCB's total assets were 38.32 trillion yuan, up 10.76% year-on-year, and ABC's total assets were 39.9 trillion yuan, up 17.5% year-on-year.

In the context of a rapidly narrowing net interest margin, balance sheet expansion tends to lead to a decline in profit margins and return on assets, which will shake CCB's long-standing proudest advantage: better interest margins and higher profitability.

In the article "How far is CCB from ICBC" 4 years ago, the new financial Langya list predicted:

Under the retail-first strategy, CCB sacrificed its corporate business in exchange for its personal business. If ICBC wants to get rid of CCB, it must start a decisive battle with CCB in the field of personal business. If the winner is ICBC, CCB will lose the qualification to compete with one of them, and if the winner is CCB, it is likely to be a "CMB Plus" story.

In the article "The Retail Finance Landscape of the Big Six", we wrote:

ICBC's conservatism and steadiness are not necessarily weaknesses, and it remains to be seen who will win in the long term. As far as the overall competition pattern of the two major banks is concerned, ICBC's retail business can continue to suppress CCB by virtue of its significant advantages in the public sector.

Four years have passed, and CCB's retail business has not won, and with the rise of ABC, the battle situation has become more stalemate. At the same time, last year, CCB's corporate financial operating income was 150 billion yuan lower than that of ICBC, and the company's financial pre-tax profit was 110 billion yuan lower than that of ICBC, which has been completely thrown off.

Today's trend is quite unfounded.

04

Finance is a "marathon".

For large banks, a well-balanced universal bank will inevitably appear bland and lack gimmicks, but in the long run, it is the way to operate with the highest probability of winning. From ICBC to JPMorgan Chase, it says it all.

As early as March 2020, the executives of China Merchants Bank at that time had a reflection: after the pandemic, we were also thinking about a question, is the higher the proportion of retail, the better? In fact, it may not be, we began to rethink our strategic positioning, and if there are no distinctive and strong "two wings" in the "one body, two wings", "one body" will not go far.

CCB is also reflecting. Recently, Zhang Jinliang, chairman of CCB, mentioned at the results conference that the traditional thinking of "judging heroes by scale and speed" should be abandoned, and the total amount and structure, scale and efficiency, short-term and long-term, local and global, development and security should be better coordinated, and the business objectives should be prevented from being single, one-sided and short-term, so as to achieve steady, balanced, coordinated and sustainable development.

Since the beginning of this year, among the six major banks, as of the close of trading on April 9, the cumulative increase of Agricultural Bank of China's A-shares was 17.58%, and the A-shares of China Construction Bank were at the bottom with a rise of 7.68%, and the share prices of Agricultural Bank of China and China Construction Bank rose by 33.18% and 23.16% respectively last year.

Markets are sensitive, after all.

05

Additional note: Why is BOC not included in the comparison?

Although the Bank of China has a disadvantage in terms of scale, the gap is not large. The more important reason is that the Bank of China is relatively special.

Among the four major banks, BOC's globalization/going out task is the heaviest, which restricts BOC from expanding as freely as other major banks - because the overseas market is more mature and the interest rate spread is lower, it is difficult for BOC to make a big move in overseas markets, and if it wants to stick to its position as a pioneer in opening up, BOC cannot favor one over the other, which will affect the pace of expansion in its domestic market.

In terms of business structure, the proportion of overseas assets of the Bank of China has remained at 25% in recent years, much higher than that of other large banks, which may explain why the Bank of China has become the first global systemically important bank in mainland China. Therefore, the Bank of China and the other three major banks are not in the same dimension to a certain extent.

Disclaimer: Personal opinions, for informational purposes only, do not represent any investment advice.