Industrial and Commercial Bank of China, or ICBC, has a market
capitalization of $334 billion, making it by far the most valuable bank
in the world. Citigroup, HSBC, and Bank of America are next on the list, worth
about $235 billion each, but the next two biggest banks are Chinese: China Construction
Bank, worth $225 billion, and Bank of China, worth $200 billion. Chinese banks,
it would seem, are pretty healthy, no? Not according
to Moody’s:
During the past two years, improving financial fundamentals due to recapitalizations
and problem loan reductions have contributed to upgrades in the financial
strength ratings of the Chinese banks, from an average of E+ to D-, Moody’s
says in a new Outlook for China’s banking system.
In other words, the Chinese banking system might be a little bit better than
it was, but it’s still really bad. The reasons are familiar:
The relatively low D- average BFSR for the Chinese banking system—Moody’s
measure of intrinsic creditworthiness and the potential need for external
support—points to the continued high levels of problem and special mention
loans of the largest banks, their developing capital adequacy, and below average
profitability metrics.
It does seem weird that the stocks of China’s banks should be skyrocketing
even as enormous amounts of uncertainty remain over the amount of non-performing
loans on those banks’ balance sheets. But then again, all Chinese stocks
are skyrocketing, so maybe the banks are just rising as some kind of relative-value
play. Tides and boats, and all that. But a valuation of more than $2,000 per
customer does seem rather excessive, by any measure, especially given how little
money most of those customers have.