The Asian Banker 500 (AB500) 2019 is an evaluation of the 500 largest banks in the Asia Pacific region for the financial year 2018. This year’s evaluation covers banks from 20 countries and territories, with a combined $58.4 trillion in assets, $30.4 trillion in net loans, $40.5 trillion in deposits and $416 billion in net profit. Industrial and Commercial Bank of China remained the largest bank in the region. Meanwhile, the top 10 ranking remains relatively unchanged, with the only exception of Sumitomo Mitsui Financial Group moving up the ranks to seventh place, overtaking Mizuho Group.

Chinese banks continue to dominate the list represented by 163 banks. Their total assets accounted for 50.3% of the combined assets of the 500 largest banks in Asia Pacific. There was a noticeable drop in the number of Japanese banks recorded from 99 in the previous year’s evaluation to 92 this year. The drop can be partially attributed to regional bank mergers in Japan. On the other hand, Siam Commercial Bank overtook Bangkok Bank to become the largest bank in Thailand. KASIKORNBANK is now the second-largest bank in the country and Bangkok Bank is the third. Nonetheless, it remains to be seen whether Siam Commercial Bank will remain the largest.

Banks in some Asia Pacific markets face mounting pressure to sustain performance. Banks in Japan, especially regional banks, have been struggling with sluggish loan demand due to an ageing and shrinking population, and their profitability has suffered as years of ultra-low interest rates in the country have continued to depress bank margins. They overtook Bangladeshi banks with the highest average cost to income ratio in the region at 65.5%, and they recorded the average return on assets of 0.24%, compared to 0.31% in the previous year. Japanese regional banks have begun consolidation efforts since the 1990s, but the approval process is lengthy due to current antitrust legislation. Relaxed rules are expected to make it easier for regional banks to merge, but consolidation won’t solve the problems completely.

The capitalisation of Vietnamese banks remained weak, especially the state-owned commercial banks, but they must meet the capital adequacy ratio (CAR) requirement of at least 8% as per the State Bank of Vietnam’s Basel II standards starting from 1 January 2020. Some local banks are expected to be undercapitalised in 2020 and may become targets of acquisition. Besides, banks in China, India and Taiwan are also less capitalised. The weighted average CAR of banks in these three markets stood at around 13.9% in 2018. Chinese banks, especially the smaller ones, are becoming increasingly capital constrained, as bank lending growth has continued to outpace the growth of bank deposits and capital adequacy requirements have been stricter in the country. Some banks have already issued more capital instruments or established plans to raise additional funds.

Hong Kong banks demonstrated sustained financial strength, but they face a tougher operating environment in 2019. In addition to the slowdown in China and the US-China trade war, the political turmoil and protests have weighed heavily on their financial results in 2019. Meanwhile, the emergence of virtual banks will increase competition in the Hong Kong banking sector, which is already highly competitive.

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