NEW YORK, March 29 /PRNewswire/ -- As banks in the so-called BRIC
countries - Brazil, Russia, India, and China - become larger and more
competitive, a few could emerge as challengers to leading Western players,
says a new report by The Boston Consulting Group (BCG).
Three Chinese companies now rank among the world's ten largest banks,
all with market capitalizations of well over $100 billion. China's ICBC
holds the number-two spot after raising $21.9 billion in an IPO last year.
Bank of China, which also went public last year, ranks sixth, and China
Construction Bank, which first issued shares in 2005, ranks seventh.
In addition to becoming larger, banks in emerging markets have become
more competitive, greatly outperforming Western banks over the past five
years. The banking industry in China has earned particularly strong returns
for investors, while Russia's Sberbank boasts a five-year shareholder
return (adjusted for risk and local market influences) of 12.9 percent per
year-the highest of any bank.
"Banks in the BRIC countries will continue to grow much faster than
their Western peers and a few could emerge as global challengers over the
next five to ten years," said Tjun Tang, one of the report's coauthors and
a BCG partner. He predicted that BRIC-country banking revenues will
increase by an average of 8 percent, on an inflation-adjusted basis, each
year until 2015. "But developing markets are also more volatile, and if
confidence goes down, valuations can change very quickly."
The rapid rise of banks in BRIC countries is just one of the trends
highlighted in Bigger, Better Banking, BCG's fifth annual study of
shareholder value creation in the banking industry. Like the previous
reports, it provides an overview of the state of the industry - reviewing
the results of the top performers by country, segment, and size - and
analyzes the drivers of value creation.
The report covers a large sample of banks that represents more than 80
percent of the total market capitalization of the global banking industry.
It also provides a performance ranking of the 100 largest banks. Among the
report's other key findings:
-- The total market cap of the banking industry grew 25.5 percent to an
all-time high of $8.1 trillion last year
-- The industry's average total shareholder return (TSR) climbed to 25.6
percent, up from 13.8 percent in 2005
-- Return on equity increased to 15.9 percent, while the cost of equity
remained at 9.5 percent, resulting in a record profitability spread of
6.4 percentage points
-- Continued equity growth was the largest driver of value creation-in the
short as well as long term
-- In developed markets, the banking industries in Canada, Australia, and
France were at or near the top of the five-year performance ranking for
the fourth consecutive year
-- Investment and universal banks were the strongest segments for one-year
as well as five-year TSR rankings
With banks facing the challenge of topping record profitability and
robust growth, the report explores new options for creating value-in
particular, opportunities to leverage investments in risk management.
"Few banks have found a way to link the benefits of risk management
investments-for example, increased transparency and more accurate risk
assessment-to management decisions," said Gerold Grasshoff, another
coauthor of the report and a BCG partner. "Risk management should, in fact,
be seen as a business investment that can unlock new possibilities for
profitability or growth."
About The Boston Consulting Group
Since its founding in 1963, The Boston Consulting Group has focused on
helping clients achieve competitive advantage. Our firm believes that best
practices or benchmarks are rarely enough to create lasting value and that
positive change requires new insight into economics and markets and the
organizational capabilities to chart and deliver on winning strategies. We
consider every assignment to be a unique set of opportunities and
constraints for which no standard solution will be adequate. BCG has 63
offices in 37 countries and serves companies in all industries and markets.
For further information, please visit our Web site at www.bcg.com.
SOURCE The Boston Consulting Group