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China's bank stay at top of global banks

(China Daily)

12:04, August 18, 2012

China's biggest banks still dominate the world's top 10 in terms of market capitalization and are among the most profitable globally, according to a report by Boston Consulting Group.

But their falling valuation multiples suggest declining investor confidence in their future profitability.

Driven by rapid growth in credit spreads, China's big four banks all made it to the list of the world's top banks, with Industrial and Commercial Bank of China maintaining the top spot, while China Construction Bank, Agricultural Bank of China and Bank of China took the third, sixth, seventh positions.

Four US banks also made it into the top 10 list.

China's banks are among the most profitable, with an average of 22 percent after-tax return on equity (ROE), second only to that in Indonesia, where ROE was 26 percent.

However, Boston Consulting suggested that the high profitability of China's banks was unlikely to be sustainable, evidenced by falling price to book values and price-earning ratios.

The price to book ratio — a key indicator of whether a public company is undervalued or overvalued — of Chinese banks fell from the record high of nearly five in 2007, to just above one.

By contrast, banks in Indonesia, Mexico and India, registered a similar ROE-COE (cost of equity) level as China's, but enjoyed a much higher price to book ratio.

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