Britain wilts as China powers its way up list of world’s top banks

By MARTIN FLANAGAN
Published on 02/07/2012 00:00

BRITAIN’S embattled banking sector will come under fresh assault this morning with the publication of an authoritative survey showing that UK banks have plunged in international strength and stature.

Against a backcloth of surging competition from Chinese banks, the report shows HSBC is the only one of Britain’s four major banking players to remain in the world’s top ten based on the capital reserves they have to back their loans, known as tier 1 capital.

The survey from The Banker magazine, widely regarded as the industry bible, reveals that Royal Bank of Scotland has fallen from tenth to 12th place in terms of capital strength, displaced by Agricultural Bank of China, one of four Chinese banks now in the top ten.

RBS made a £24bn loss in 2008, a UK corporate record, when its core tier 1 capital ratio fell to just over 4 per cent. The bank’s core ratio has since recovered to 10.6 per cent.

Rankings for 2012 reveal overall UK banking profits have fallen 8.2 per cent, lending is down 3.1 per cent and capital is down by about 1.7 per cent.

Brian Caplan, editor of The Banker, said the figures showed that UK banks had “suffered tremendously in terms of their share of global banking profits”.

Caplan said: “Some are making huge profits while others make huge losses. Chinese banks, on the other hand, are making the type of profits that European banks can only dream about and this year’s results show Europe’s loss is China’s gain.”

The survey reveals that in the five years since the collapse of Northern Rock, UK banks’ share of global banking profits has halved to 5 per cent.

By comparison, Chinese banks, which accounted for 4 per cent of profits in 2007, now make up just under 30 per cent of total global earnings.

Analysts said the report will make uncomfortable reading for Britain’s leading banks, which also include Barclays and Lloyds, as it comes amid a fresh scandal in the UK banking sector.

Barclays was fined a total of £290 million by US and UK financial regulators last week after it admitted its traders had fiddled the figures at which banks lend to each other. The Libor and Euribor rates are used to price more than £300 trillion of financial products, from mortgages and credit cards to business loans and complex derivative products.

At the weekend, institutional investors called for Barclays’ chief executive Bob Diamond to resign in the wake of the shocking events. Diamond has been summoned to appear before the House of Commons Treasury select committee this Wednesday, with Barclays’ chairman Marcus Agius – who announced yesterday that he will resign – and non-executives due to appear the next day.

It was also reported at the weekend that 14 Barclays’ traders at the heart of the market fix are being investigated by America’s FBI, with the UK’s Serious Fraud Office conducting its own inquiry.

The Banker Top 1,000 report notes that the situation is worse still for eurozone banks, which generated just 6 per cent of global banking profits in the latest year compared with 46 per cent five years ago.

The Ernst & Young eurozone financial services forecast (EEFS), also released today, says the mixture of economic headwinds and the single currency zone crisis is having a “worrying” effect on bank balance sheets.