The Industrial and Commercial Bank of China (ICBC) shot to centre stage this August when it revealed itself as the world’s most profitable bank. But it is notable for more than just profits: over the last year, it has played a pioneering role in becoming an international player through acquisitions and organic expansion.
In March it concluded the $5.5 billion purchase of a 20% stake in South Africa’s Standard Bank [see best African deal of 2008]. It was a canny buy. ICBC took a stake in the largest commercial bank in Africa, but equally importantly, cornered potential access to all Chinese business on the continent – a key component for China’s economic need to provide the resources necessary to keep its economy in overdrive.This August ICBC also became only the second Chinese bank since 1991 to secure a licence to set up a branch in New York.
Already the biggest bank in the world via market capitalization, following its mega-IPO (initial public offering) in 2007, and China’s largest lender as well, ICBC reported first half after-tax profits this year of Rmb65 billion ($9.5 billion) – an astonishing year-on-year increase of more than 56% during the first six months.
ICBC has more than doubled its profits since 2005, on the back of China’s 10% annual economic growth and its buoyant climate for corporate loans and wealth management services. “Balance sheet growth has been stunning, with both loans and deposits doubling over the past 21⁄2 years,” says Sherry Lin, a bank analyst at Credit Suisse.
ICBC’s concentration on the domestic market has allowed it to avoid the pitfalls of dabbling in the toxic subprime investments that have hurt most of its international competitors.
Much of its success is down to China’s economy – all the other 13 domestic listed banks reported similar record profits. But many analysts believe that ICBC fares well against its peers. “Our fundamental view on ICBC remains positive – that ICBC is the best positioned to weather any macroeconomic slowdown,” says Lin.
However, the collapse of China’s stock markets over the past year has slowed some of the momentum of the big banks: ICBC lost its right to be called the world’s biggest bank in September, when HSBC, which it overtook as the world’s most profitable bank this year, retook the slot.
ICBC is well cushioned against any downside in the markets: the government’s cash intervention in September in the stocks of state enterprises provided the platform for ICBC’s shares to perform a stunning rise of 10% that week.
ICBC, and the Chinese banking sector in general, have confounded observers before. In January, Fitch expressed doubts about China’s banks on the basis that their operating environment had been so benign. “It doesn’t get better than this,” the rating agency said then.
In September, it retracted that view: “In fact it has gotten better, at least for listed banks.” Fitch said.