The Banker in its 2024 review of Top 1000 Global Bank Ranking has said that “the long-anticipated but painful devaluation of the Nigerian Naira, following a high-profile changing of the guard at the country’s central bank last June, severely affected the balance sheets of the country’s banks in 2023, who were still smarting after the impact of the 2022 Ghanaian debt crisis. The devaluation has continued this year and had a ruinous impact on the five Nigerian banks in the latest Top 1000 ranking, which between them shed 22.15 per cent of their Tier 1 capital in dollar terms. Unsurprisingly, all five see their positions in this year’s global ranking fall significantly. In the face of such challenges to banks’ capital positions, it came as little surprise when the Central Bank of Nigeria launched a recapitalisation programme for the sector in March of this year. Zenith Bank and Access Holdings, the country’s largest banks by Tier 1 capital and assets, respectively, both posted a 21 per cent Tier 1 capital drop in their 2023 financial statements, dropping 98 and 155 places in this year’s Top 1000.
Having escaped the impact of the Ghanaian debt crisis relatively unscathed in 2022, UBA again posted a strong performance compared to its peers in 2023, with asset growth in local currency terms across its wider group operations nearly double that of its domestic operations during the year. The bank’s Tier 1 capital fell by just 3.3 per cent in dollar terms, and while its position in the ranking dropped 42 places, it overtook Guaranty Trust Bank as the country’s third-largest lender.
“Conversely, the Naira’s fall in value versus the dollar had an inflationary impact on pre-tax profits, resulting in the five dominating in terms of return on capital for the continent, led by Guaranty Trust Bank. The drop in Tier 1 capital in dollar terms meanwhile has seen Nigerian banks’ return on capital spike for 2023. The five lenders lock out the continent’s five best performers in terms of return on capital, and all rank in the top 20 worldwide. Guaranty Trust Bank, which saw its Tier 1 capital drop by 36.1 per cent in dollar terms in 2023, had the second-highest return on capital for any lender in the world (behind Peru’s Banco de la Nación) at 54.9 per cent. The bank also recorded the highest return on assets in Africa (and fifth-highest worldwide) with 5.57 per cent. GTB’s high profitability scores help it win the crown for the best-performing lender in Nigeria, with table-topping scores for leverage, operational efficiency, liquidity and return on risk. Last year’s leader, UBA, fell just short this year, placing second and displaying strong scores for growth, return on risk, leverage and soundness”.
The Banker in its report said “after years in the doldrums, soaring interest rate income has boosted bank profits, according to The Banker’s Top 1000 World Banks 2024 ranking, with some lenders reporting their best year on record in terms of pre-tax profits in 2023. The annual list is compiled after all the world’s largest lenders release their yearly financial statements. Total bank pre-tax profit was $1.53tn last year, an overall average 14 per cent increase from the previous ranking and a far higher 41 per cent increase for Europe — with markets like Switzerland and Italy recording a 155 per cent and 72 per cent increase, respectively. In the US, JPMorgan reported its highest-ever pre-tax profit at $61.6bn, the highest-ever pre-tax profit achieved by a US bank, and a 33 per cent increase from the previous year. If higher interest rates have pushed up banks’ net interest income, they have also made borrowing more expensive and challenging for bank clients, and there are some early signs of discomfort in loan portfolios — specifically for so-called “stage 2” loans.
“After a record year, normalising interest rates will impact profitability in many banking markets around the world. But banks will also be looking at fee-earning business areas, rationalising costs and, particularly in Europe, at mergers and acquisitions to gain scale and compete with larger peers,” said Silvia Pavoni, editor in chief of The Banker. Under IFRS international accounting standards, stage 2 indicates a loan whose credit risk has increased significantly since the previous reporting date. There have been noticeable increases in a number of large banking markets, with stage 2 loans now accounting for a higher share of total gross loans in Australia and Germany, at 17 per cent and 10 per cent, respectively, as property loans have been a significant area of concern for banks in both countries in recent years. China’s banks continue to dominate the Top 1000 ranking, with ICBC, China Construction Bank, Agricultural Bank of China and Bank of China remaining the four largest banks globally by Tier 1 capital, which is a core measure of financial strength under the international Basel regulatory framework. A further two Chinese banks, Bank of Communications and China Merchants Bank, are in ninth and 10th place.
ICBC’s Tier 1 capital now stands at $524bn, which is almost twice that held by its nearest non-Chinese peer, JPMorgan. China Merchants Bank, whose Tier 1 capital increased by 12.58 per cent, leapfrogged the only previously remaining European lender in the largest 10 banks group, HSBC, at the very top of the ranking, which is now solely occupied by Chinese and US names. Measured by asset size, however, HSBC remains the world’s seventh-largest bank, accounting for over 40 per cent of UK banking’s pre-tax profits. Two other European names, French banks BNP Paribas and Crédit Agricole, are also among the largest 10 lenders by assets. Elsewhere in Europe, banks in Italy and Switzerland reported their highest aggregate pre-tax profits in three decades’-worth of data; while lenders in several other countries, including the UK and Spain, achieved their highest pre-tax profits since the global financial crisis.
