HSBC (HSBA.L) is the only European bank in the global top 10 list for the tenth consecutive year, new data has shown.
According to The Banker’s latest ranking of the top 1,000 world banks, HSBC, which is the UK’s largest bank, moved up one position to eighth place. This came as it increased its tier 1 capital, a key measure of banking strength from a regulator’s point of view, by 7.96% to $160.2bn (£115bn).
HSBC is midway through a transformation plan meant to reverse years of underperformance, and has been strategically shifting capital to areas amassing higher returns such as Asia, and wealth management. The Banker revealed that it recorded a 9.91% increase in assets.
The research also showed that the world’s largest banks managed to withstand ongoing pressures from the COVID-19 pandemic, adding 12.7% to their collective tier 1 capital to reach the highest ever level of $9.9tn.
Of the top five UK banks, Lloyds Banking Group (LLOY.L), which ranked third, recorded the highest percentage increase in tier 1 capital (15.27%) year-on-year, while Barclays (BARC.L) ranked second and topped the group in asset growth, with a 19.93% rise.
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 (STAN.L), which was ranked fifth.
NatWest Group (NWG.L), 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.
“The UK banking industry has faced significant headwinds over the course of the past year, with the impacts of the COVID-19 pandemic and Brexit uncertainty weighing profitability down,” Joy Macknight, editor of The Banker, said.
“Despite the challenging environment, the UK’s banking sector remains the fifth largest in the world, with aggregate tier 1 capital of $437.5bn, underpinned by London’s position as a leading global financial centre.”
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 decline of 11.61%.
Spain recorded negative pre-tax profits at an aggregate level, with two of its largest banks, Banco Santander (SAN.MC) and Bankia, moving from profit to loss during the period.
The western European region 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 was the lowest for any region – at 3.10%
China continued to grow at stellar rates, 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 ($2.96tn) as the US ($1.58tn), with 178 banks in the ranking. The Asia-Pacific region generated more than half of the world’s profits, up from 43.5% in last year’s ranking, and was the only region to increase its share of profits.
While the Top 1000’s combined profits dropped by 19.2% year-on-year, it was not as catastrophic when compared to the fallout from the financial crisis, when profits plummeted 85.3% in 2009.
Macknight, added: “Although profits have shrunk across the globe and many banks’ balance sheets are loaded with allowances for expected loan losses, the world’s banking industry has held up remarkably well and is better capitalised than ever before.”
Watch: HSBC’s wealth push in China