The aggregate market cap of the top 25 global banks declined 3.7% from $2.7 trillion on 30 June 2020 (Q2 2020) to $2.6 trillion as of 30 September 2020 (Q3 2020). Of the top 25, 14 reported moderate growth in market cap, while 11 reported quarter on quarter (q-o-q) decline. The most notable drops were reported by China Construction Bank, HSBC and Citigroup, which contracted by 19.2%, 19.1%, and 15.6%, respectively, according to GlobalData, a leading data and analytics company.

According to China Banking and Regulatory Commission, for the first half of 2020, ending 30 June 2020, net profitability of commercial banks declined by 9.4% over the corresponding period in 2019.

Parth Vala, Company Profiles Analyst at GlobalData, comments: “Financial authorities in China requested that financial institutions extend cheap lending to struggling businesses and deferring loan repayments, thereby cutting down heavily on annual profits.”

In line with this, over the same period, China Construction Bank posted net profit of CNY138.9bn, reflecting a year-on-year (y-o-y) decline of 10.8% – mostly driven by greater provisions against rising non-performing loans (NPLs) to mitigate the adverse impact of COVID-19.

Vala continues: “This was a double whammy for the Asia-focused HSBC as it was caught in the crosshair of political instability in Hong Kong and the COVID-19 pandemic. HSBC’s net profitability was down by roughly 69% in the first half of 2020 over the corresponding period in the previous year. Moreover, as part of its ongoing restructuring activities, the group intends to undertake a slew of measures, including large layoffs and an asset sale of around $100bn in the US and Europe over the course of the next three years.”

Meanwhile, Citigroup’s net profit plunged by 48% to $1.3bn in Q2 2020 from $2.5bn in Q1 2020. Substantial growth in loan loss provisions due to a downgrade in corporate loan portfolio, owing to the continued impact of the pandemic, along with 12% increase in cost of credit over that in Q1 2020 weighed heavily on the bank’s profits. Along with this, Citi’s management expects further decline in its Q3 2020 revenue owing to lower consumer activity and interest rates.

There were three players that exited from the top 25 in Q3 2020 – Itau Unibanco, BNP Paribas, and PT Bank Central Asia – with market declines of 37.6%, 8.3% and 9.4%, respectively. Itau Unibanco was mainly affected due to significant devaluation in Brazilian Real, which is being touted as the worst-performing currency in 2020. The above players were replaced by Charles Schwab, PNC Financial and Qatar National Bank with q-o-q market cap growth of 7.5%, 4.5%, and 4%, respectively.

Vala concludes: “Banks across the globe have had to cut down on their yields and as a result, have had to compromise on profits in order to boost real economy. Stringent cost savings initiatives including branch rationalization, adopting greater digital means to serving customers and focus on core operations have become the utmost priorities for business resiliency.”