An Overview of the World’s Largest Banks

By Hugh Thomas

I am grateful to James Ma Kwok Wai for able assistance in constructing the tables used
in this paper. This is a first draft. Please contact the author at hugh-
thomas@cuhk.edu.hk with corrections, comments and suggestions for improvement.
Banks provides the world with liquidity – the ability to exchange ownership claims with
minimal cost. When we lend money to non-financial corporations, we are conscious of
lending. But when depositors lend money to banks, they believe that they have “money in
the bank”. Banks debts are defined as society’s money – the most liquid asset most members
of society can hold. To make payments using bank deposits, customers must access the
payments system through banks.

Banking is defined in law and regulated by the national governments of the world. Most
jurisdictions define banks as those institutions that take deposits and make payments on
behalf of customers through payments systems. In some jurisdictions, banks are also defined
by their lending power.

In addition to providing legally defined banking services, banks lend, manage financial
assets, and make and service markets. They provide trust and investment banking services –
underwriting, issuing, and making markets in securities and advising companies as to how
they should tap and invest in the money and capital markets. Some banks also underwrite
and distribute life and general risk insurance. In playing these diverse roles, banks are
regulated by banking, securities markets, insurance and pension fund regulators. The critical
nature of banking services and the high degree of government regulation leads customers to
believe that the obligations of banks – especially the largest banks – are implicitly (if not
explicitly) guaranteed by governments. This assumption, in turn, feeds the need for
regulation.

Banks’ liquidity, market making, market servicing, information processing and other
intermediation services evidence large economies of scale. The importance of reputation in
provision of these services and the implicit government guarantees of the largest banks
increases further their scale economies. Thus it is not surprising that concentration in
banking worldwide is very high. In most countries, a handful of very large banks dominate.

Table 1 shows the ranking of the 100 largest banks by book value of equity capital. These
100 banks include over 67 percent of the world’s banking assets [measured by the assets of
the world’s largest 1000 banks]. Within the top 100 banks, there is also substantial
concentration, with the top 20 banks accounting for 50 percent of profit and 45 percent of the
aggregate assets and capital. Bank concentration is likely to increase in future as national
boundaries to the flow of capital decrease and nationally fragmented institutions, markets and
instruments succumb to globalization.

2
 Table 1: The 100 Largest Banks in the World by the Book Value of Equity Capital

Tier 1 Capital %

Pre-tax profit %
Total Assets %
Cumulative %

Cumulative %

Cumulative %
Rank Bank Name Country Continent
1 Citigroup USA North America 4.15% 4.15% 3.41% 3.41% 6.42% 6.42%
2 JP Morgan Chase & Co. USA North America 3.83% 7.98% 2.66% 6.06% 1.65% 8.08%
3 HSBC Holdings PLC Hong Kong Asia 3.75% 11.73% 2.93% 9.00% 4.68% 12.75%
4 Bank of America Corp USA North America 3.59% 15.32% 2.55% 11.54% 5.64% 18.39%
5 Credit Agricole France Europe 3.54% 18.85% 2.85% 14.40% 2.77% 21.16%
6 Royal Bank of Scotland UK Europe 2.44% 21.30% 2.57% 16.97% 3.55% 24.71%
7 Mitsubishi Tokyo Financial Group Japan Asia 2.23% 23.53% 2.25% 19.22% 1.62% 26.33%
8 Mizuho Financial Group Japan Asia 2.17% 25.69% 2.98% 22.19% 2.33% 28.67%
9 HBOS UK Europe 2.04% 27.74% 1.74% 23.94% 2.36% 31.02%
10 BNP Paribas France Europe 1.99% 29.73% 2.83% 26.77% 2.75% 33.77%
11 Bank of China China Asia 1.94% 31.67% 1.18% 27.96% 1.11% 34.88%
12 Santander Central Hispano Spain Europe 1.86% 33.53% 1.80% 29.76% 1.60% 36.48%
13 Barclays Bank UK Europe 1.79% 35.32% 2.28% 32.03% 2.36% 38.85%
14 Rabobank Group Netherlands Europe 1.72% 37.04% 1.49% 33.52% 1.02% 39.86%
15 Sumitomo Mitsui Financial Group Japan Asia 1.70% 38.73% 2.06% 35.58% -0.27% 39.59%
16 Wells Fargo & Co. USA North America 1.62% 40.35% 0.99% 36.56% 2.86% 42.45%
17 ING Bank Netherlands Europe 1.61% 41.96% 1.93% 38.49% 1.14% 43.60%
18 Wachovia Corporation USA North America 1.59% 43.56% 1.13% 39.62% 2.03% 45.62%
19 UBS Switzerland Europe 1.53% 45.09% 3.52% 43.14% 2.51% 48.13%
20 ABN AMRO Bank Netherlands Europe 1.51% 46.59% 1.90% 45.05% 1.97% 50.10%
21 Deutsche Bank AG Germany Europe 1.42% 48.01% 2.63% 47.67% 1.46% 51.56%
22 Groupe Caisse d'Epargne France Europe 1.40% 49.41% 1.70% 49.37% 0.87% 52.43%
23 Societe Generale France Europe 1.39% 50.81% 1.88% 51.25% 1.83% 54.27%
24 Credit Mutuel France Europe 1.38% 52.19% 1.21% 52.46% 0.95% 55.22%
25 China Construction Bank China Asia 1.31% 53.50% 1.08% 53.55% 1.61% 56.83%
26 Lloyds TSB Group UK Europe 1.26% 54.76% 1.24% 54.79% 1.79% 58.62%
27 Credit Suisse Group Switzerland Europe 1.21% 55.98% 2.21% 57.00% 1.95% 60.57%
28 UFJ Holdings Japan Asia 1.20% 57.18% 1.68% 58.68% -0.58% 59.99%
29 HypoVereinsbank Germany Europe 1.19% 58.37% 1.46% 60.14% -0.82% 59.16%
30 Banca Intesa Italy Europe 1.18% 59.56% 0.86% 61.00% 0.95% 60.12%
31 Metlife USA North America 1.17% 60.73% 0.82% 61.81% 1.04% 61.16%
32 Industrial & Commercial Bank of China China Asia 1.13% 61.85% 1.57% 63.39% 0.09% 61.25%
33 Banco Bilbao Vizcaya Argentaria Spain Europe 1.12% 62.97% 0.97% 64.36% 1.50% 62.75%
34 Fortis Bank Belgium Europe 1.09% 64.06% 1.51% 65.87% 0.96% 63.72%
35 Norinchukin Bank Japan Asia 1.03% 65.09% 1.27% 67.15% 0.48% 64.19%
36 Groupe Banques Populaires France Europe 1.02% 66.11% 0.78% 67.93% 0.76% 64.95%
37 Agricultural Bank of China China Asia 0.93% 67.04% 0.97% 68.90% 0.22% 65.17%
38 Washington Mutual USA North America 0.91% 67.95% 0.71% 69.60% 1.23% 66.40%
39 UniCredito Italiano Italy Europe 0.90% 68.85% 0.83% 70.44% 1.21% 67.61%
40 National Australia Bank Australia Australia 0.84% 69.69% 0.65% 71.08% 0.90% 68.51%
41 Dexia Belgium Europe 0.84% 70.53% 1.22% 72.30% 0.80% 69.31%

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 Tier 1 Capital %

Pre-tax profit %
Total Assets %
Cumulative %

Cumulative %

Cumulative %
Rank Bank Name Country Continent
42 SanPaolo IMI Italy Europe 0.83% 71.35% 0.66% 72.96% 0.76% 70.07%
43 U.S. Bancorp USA North America 0.82% 72.17% 0.45% 73.41% 1.64% 71.71%
44 Nordea Group Sweden Europe 0.81% 72.98% 0.86% 74.27% 0.93% 72.64%
45 Commerzbank Germany Europe 0.80% 73.78% 1.33% 75.60% 0.30% 72.94%
46 Scotiabank Canada North America 0.79% 74.56% 0.51% 76.11% 0.86% 73.80%
47 MBNA Corp USA North America 0.78% 75.34% 0.14% 76.25% 1.10% 74.89%
48 KBC Bank Belgium Europe 0.74% 76.09% 0.78% 77.03% 0.88% 75.77%
49 Royal Bank of Canada Canada North America 0.74% 76.83% 0.80% 77.83% 0.92% 76.69%
50 Bayerische Landesbank Germany Europe 0.72% 77.55% 1.02% 78.85% 0.22% 76.90%
51 Caja de Ahorros y Pen. De Barcelona - La Caixa Spain Europe 0.64% 78.19% 0.35% 79.20% 0.42% 77.32%
52 DZ Bank Deutsche Zentral Germany Europe 0.64% 78.83% 1.11% 80.31% 0.41% 77.73%
53 Danske Bank Denmark Europe 0.64% 79.47% 0.87% 81.19% 0.71% 78.44%
54 Resona Holdings Japan Asia 0.62% 80.09% 0.85% 82.03% 0.96% 79.40%
55 Bank of Montreal Canada North America 0.62% 80.70% 0.49% 82.52% 0.74% 80.15%
56 Landesbank Baden-Wurttemberg Germany Europe 0.61% 81.31% 1.06% 83.58% 0.35% 80.50%
57 Toronto-Dominion Bank Canada North America 0.58% 81.89% 0.57% 84.16% 0.70% 81.20%
58 Countrywide Financial Corporation USA North America 0.58% 82.47% 0.30% 84.45% 0.96% 82.15%
59 Canadian Imperial Bank of Commerce Canada North America 0.56% 83.02% 0.52% 84.97% 0.65% 82.81%
60 National City Corp USA North America 0.55% 83.57% 0.32% 85.29% 1.09% 83.90%
61 SunTrust Banks USA North America 0.55% 84.12% 0.36% 85.65% 0.60% 84.50%
62 ANZ Banking Group Australia Australia 0.54% 84.66% 0.41% 86.06% 0.76% 85.25%
63 Dresdner Bank Germany Europe 0.52% 85.18% 1.64% 87.69% -0.02% 85.23%
64 Capitalia Gruppo Bancario Italy Europe 0.48% 85.66% 0.42% 88.11% 0.31% 85.54%
65 Commonwealth Bank Group Australia Australia 0.48% 86.15% 0.46% 88.57% 0.70% 86.24%
66 Fifth Third Bancorp USA North America 0.48% 86.62% 0.22% 88.79% 0.59% 86.84%
67 Allied Irish Banks Ireland Europe 0.47% 87.09% 0.32% 89.11% 0.51% 87.35%
68 HSH Nordbank Germany Europe 0.47% 87.56% 0.51% 89.62% 0.25% 87.61%
69 Banca Monte dei Paschi di Siena Italy Europe 0.46% 88.02% 0.40% 90.02% 0.26% 87.87%
70 Capital One Financial Corporation USA North America 0.45% 88.48% 0.12% 90.15% 0.63% 88.50%
71 Nykredit Group Denmark Europe 0.45% 88.93% 0.39% 90.54% 0.21% 88.71%
72 Eurohypo Germany Europe 0.45% 89.38% 0.71% 91.25% 0.22% 88.93%
73 Sumitomo Trust & Banking Japan Asia 0.45% 89.83% 0.33% 91.58% 0.39% 89.32%
74 Standard Chartered UK Europe 0.44% 90.27% 0.33% 91.91% 0.57% 89.90%
75 Golden West Financial Group USA North America 0.44% 90.71% 0.25% 92.15% 0.55% 90.44%
76 Kookmin Bank Korea Asia 0.44% 91.14% 0.41% 92.56% 0.23% 90.67%
77 Shinkin Central Bank Japan Asia 0.43% 91.58% 0.60% 93.15% 0.13% 90.81%
78 Westpac Banking Corporation Australia Australia 0.43% 92.01% 0.39% 93.55% 0.66% 91.47%
79 Svenska Handelsbanken Sweden Europe 0.42% 92.43% 0.47% 94.01% 0.52% 91.99%
80 Bank of Ireland Ireland Europe 0.42% 92.85% 0.35% 94.37% 0.46% 92.45%
81 DnB NOR Group Norway Europe 0.42% 93.26% 0.27% 94.64% 0.43% 92.89%
82 Caja de Ahorros y Monte de Piedad de Madrid Spain Europe 0.40% 93.67% 0.27% 94.91% 0.32% 93.21%
83 DBS Bank Singapore Asia 0.40% 94.07% 0.25% 95.16% 0.41% 93.62%

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 Tier 1 Capital %

Pre-tax profit %
Total Assets %
Cumulative %

Cumulative %

Cumulative %
Rank Bank Name Country Continent
84 John Hancock Holdings (Delaware) USA North America 0.40% 94.47% 0.23% 95.39% 0.24% 93.86%
85 KeyCorp USA North America 0.39% 94.85% 0.21% 95.60% 0.37% 94.23%
86 Skandinaviska Enskilda Banken Sweden Europe 0.37% 95.23% 0.55% 96.15% 0.37% 94.60%
87 BB & T Corp USA North America 0.37% 95.60% 0.23% 96.38% 0.62% 95.22%
88 BNL-Banca Nazionale del Lavoro Italy Europe 0.37% 95.97% 0.25% 96.63% 0.02% 95.24%
89 ForeningsSparbanken (Swedbank) Sweden Europe 0.36% 96.33% 0.35% 96.98% 0.48% 95.71%
90 Banco Popular Espanol Spain Europe 0.35% 96.68% 0.20% 97.18% 0.47% 96.18%
91 Bank of New York USA North America 0.34% 97.02% 0.22% 97.39% 0.59% 96.77%
92 Shoko Chukin Bank Japan Asia 0.34% 97.36% 0.26% 97.66% 0.02% 96.79%
93 State Bank of India India Asia 0.33% 97.69% 0.33% 97.99% 0.50% 97.29%
94 Banco Itau Holding Financeira Brazil South America 0.33% 98.03% 0.11% 98.10% 0.74% 98.02%
95 Erste Bank Austria Europe 0.33% 98.36% 0.44% 98.54% 0.38% 98.41%
96 Norddeutsche Landesbank Girozentrale Germany Europe 0.33% 98.69% 0.62% 99.16% 0.11% 98.52%
97 Mitsui Trust Holdings Japan Asia 0.33% 99.02% 0.27% 99.43% 0.37% 98.89%
98 Regions Financial Corp USA North America 0.33% 99.35% 0.19% 99.62% 0.32% 99.20%
99 Desjardins Group Canada North America 0.33% 99.68% 0.20% 99.82% 0.33% 99.54%
100 PNC Financial Service Group USA North America 0.32% 100.00% 0.18% 100.00% 0.46% 100.00%
Source: Timewell, Stephen (2005) The Top 1000 World Banks, The Banker, 155, 209-326.

Figure 1 shows that about 59 percent of banking assets of the world’s largest 100 banks are in
Europe, 18 percent in North America and 23 percent in Asia and Australia. In terms of both
tier 1 capital1 and pre-tax profits, Europe’s share is 42 percent and 47 percent, respectively.
These numbers, however, tend to understate the financial importance of the United States for
two reasons: first, the degree of banking concentration is lower in the US than elsewhere in
the world and secondly, the degree to which financial needs are met by markets and non-
banking financial institutions rather than by banks is much higher in the US than in the rest of
the world.

1
The Basel Accord definition of core equity capital for minimum regulatory capital requirements being the sum
of common shareholders' equity common shares, contributed surplus, retained earnings, non-cumulative
preferred shares plus minority interests in subsidiaries from Tier 1 capital minus goodwill.

5
 Figure 1: Concentration of Capital, Assets and Profits by Territory

Tier 1 Capital Total Assets Pre-tax Profit

70%
59%
60%
47%
50% 42%
40% 33% 35%

30% 25% 23%

19% 18%
20%

10%

0%

Asia & Australia Europe North America

Source: Timewell, Stephen (2005) The Top 1000 World Banks, The Banker, 155, 209-326.

Table 2 shows the aggregate financial statements of the world’s largest 100 banks. Banks are
different from non-financial institutions. Banks’ largest asset categories are loans. They
maintain a large amount of liquid assets and their fixed assets comprise less than one percent
of assets. They are financed mainly by deposits and other short-term funding. A non-
financial corporation with this degree of liquidity mismatch between short-term assets and
liabilities would be operating dangerously, but the short term liabilities of banks, their
deposits, form in aggregate a core of stable funding.

Banks are highly leveraged, with only five percent of total assets being funded with equity.
This debt equity ratio of 19 would not be tolerated in a non-financial firm where debt equity
ratios of over two are viewed as risky. Banks are able to leverage themselves to such a great
extent because of the relatively low risk of their fixed income portfolio of assets which
provides relatively stable income. Banks get over half of their revenue from the difference
between interest received on loans and interest paid out on deposits and other funding. But
they also have considerable fee income, from providing credit asset management and
financial market related services to customers. Because banks lend to customers who may
default on their debt, banks must make provisions for the possibility that loans will not be
repaid. Banks’ provisions account for a large part of their income. Among the world’s 100
largest banks, loan loss provisions account for 8 percent of total revenue or about one third of
net income. The global economy in the year 2004 was stable and growing; hence, loan losses
were relatively moderate. When losses increase during recessions, provisions rise, often
dramatically.

6
 Table 2:Aggregate Financial Statements of the 100 Largest Banks in the World 2004
A. Balance Sheet
US$ billion % US$ billion %
Assets Liabilities & Equity

Liquid Assets 5,933 15 Deposits & Short-term Funding 28,616 70

Other Assets 15,053 37 Other Liabilities 10,295 25

Loans, Net 19,590 48 Total Equity 2,052 5

Fixed Assets 387 1

Total Assets 40,963 100 Total Liabilities & Equity 40,963 100

B. Income Statement
US$ billion %
Operating Income 1,191 100
Net Interest Revenue 620 52
Other Operating Income 571 48

Overheads 729 61

Loan Loss Provisions 98 8

Other -14 -1

Profit Before Tax 350 29

Tax 108 9

Net Income 243 20

Source: Bankscope database, Bureau Van Dijk Electronic Publishing.

Note: see appendix 1 for definitions of accounts

The operations of the banks can be summarized through asset quality, capital adequacy,
profitability, efficiency and liquidity ratios. We compare worldwide and regional ratios with
the five largest banks in the world. Data and ratio definitions are taken from Bankscope2.

Asset Quality

Asset quality is critical to banks, because credit risk – the risk that loans will not be paid in
full when due – is the largest risk banks face. Banks carry their loans at their gross principal
value reduced by reserves (or allowance for loan losses). There are two types of reserves.
 General reserves are portfolio-wide, based on loan characteristics, management
experience and the state of the economy.
 Specific reserves are applied to specific loans that are known to be in difficulty
Banks could set general reserves as a statistical expected portfolio loss:

EL = PD × LGD × EAD
where EL = expected losses in an amount of currency, PD = the probability of default, LGD
2
Bankscope is a comprehensive, global database containing financial information on 24,000 public and private banks from
around the world. It combines data from the main information provider, Fitch Ratings, and 6 other sources, with software
for searching and analysis.

7
 = loss given default expressed as a percent of loan outstanding and EAD = exposure at
default in an amount of currency. But most banks do not use this approach because the
interest on the good loans in each portfolio is set high enough to offset the losses on the bad
loans so no reserve is needed for expected losses as defined above. General loan loss
reserves are more often used as a quasi-equity cushion to smooth earnings and provide
additional comfort to depositors and debt-holders. Moreover, because the provisions that
replenish reserves are charges to income, setting reserves higher may defer tax payments.
The level of specific provisions depends on both loan quality (with higher provisions being
associated with poorer quality) and the timing of writing off loans. When a bank writes off
loans, it reduces both the gross loan principal and the reserves contra account. These factors
complicate the analysis of loan loss reserves.

On average, worldwide, average reserves are two percent of gross loans, with lower ratios in
Australia and North America. Among the top five banks, only Credit Agricole has loan loss
reserves higher than the world average.

To further examine the quality of assets, the loan loss reserve to gross loans ratio can be
broken down into loan loss reserve to impaired loans and impaired loans to gross loans as
follows:
Loan Loss Reserve Loan Loss Reserve Impaired Loans
= ×
Gross Loans Impaired Loans Gross Loans
The ratio of loan loss reserves to impaired loans measure the adequacy of reserves, with
higher ratios indicating greater conservatism. Impaired loans are loans with objective
evidence that the bank is unlikely to recover the full amounts owing to total loans. The
higher is the ratio of impaired loans to gross loans, the poorer is the quality of the portfolio.
Using this interpretation, Australian and North American large banks display conservatism
and higher quality portfolios while Chinese banks display low reserve coverage and poor
portfolio quality. Among the top five banks, both Credit Agricole and Mizuho display low
reserves and high impaired loans.

Loan loss reserves are balance sheet asset contra accounts. Loan loss provisions (or charges
to income) are the income statement accounts that add annually to reserves. The ratio of loan
loss provision to net interest revenue in the long run measures the percent of loan interest lost
to credit risk. Banks lending to higher risk customers will charge higher levels of interest to
offset losses, increasing both the numerator and the denominator. But provisions tend to be
volatile from year to year, depending on the economy. Across the world, 16 percent of net
interest revenue was charged to loan loss provisions in 2004, but considerable variation
among banks is evident. Japanese banks in 2004 charged more than 50 percent and UBS
actually took a negative provision, reducing its level of loan loss allowances and increasing
its income in the year because it concluded that its allowances understated the credit quality
of its portfolio. Both Citigroup and HSBC’s relatively high loan loss provision reflect their
Latin American and consumer lending portfolios.

Capital Adequacy

Because equity capital is able to participate in losses, the greater is the equity capital of a
bank, the safer is the bank. But equity capital is more expensive than debt, so equity holders
and managers (who are hired to maximize the returns of equity holders) have an incentive to
keep equity capital to a minimum. Equity capital is such an important cushion to depositors,
other debt-holders, deposit guarantors and regulators that it is subject to a worldwide

8
consensus as to minimum acceptable levels. Under the Basel Accords3 the ratios of tier 1
capital to risk assets4 and total capital to risk assets must exceed 4% and 8% of risk assets
respectively. These capital measures address the adequacy of a bank’s capital to cover both
on- and off-balance sheet credit risks. Virtually all banking jurisdictions in the world
subscribe in some degree to the Basel Accords, although they are under no legal obligation to
do so. The Basel Accords are achieving their objectives. Banks are far more conscious of
risk management than they would have been in the absence of the Accords and, as Tables 3
and 4 show, banks worldwide now maintain similar level of total capital to risk assets.

It is instructive to compare the equity to total asset ratio with the Basel total capital to risk
assets ratio. The lower equity to total assets of Chinese, Japanese and European banks
reflects their greater proportionate investment in lower risk-weighted assets (especially
government bonds) compared with their North American competitors. Note that UBS has an
equity to total assets ratio of 2.3 percent, while Citigroup and HSBC have equity levels of
over 7 percent; yet this ranking is reversed if one takes into consideration the risk weighting.
In risk weighted terms, UBS is the most comfortably capitalized bank among the top five.

Profitability and Efficiency

Return on equity is a summary of bank performance from the equity holder’s point of view.
Tables 3 and 4 show UBS as the most profitable bank with Japanese banks being the least
profitable. As Mizuho is somewhat ahead of other Japanese banks in its restructuring and
recovery from the Japanese bank crisis of the 1990s, its profitability exceeds its peers.

Return on assets is a more problematic measure. Not only do banks’ asset compositions
reflect different risk structures (see above), but also banks undertake risks not reflected in
their total assets at all. So unless one is confident that the risks booked by two different banks
to generate returns are similar, one cannot draw meaningful conclusions from simple ROA
numbers. The higher efficiency suggested by Citigoup’s and HSBC’s ROAs reflect the
higher risk content of their on- and off balance sheet positions.

Net interest margin is computed by dividing net interest income by total earnings assets.
Fifty-two percent of the revenue of the largest banks in the world is derived from the spread
between interest revenue and interest expense, so net interest margin is a major driver of
profitability. Both North America and the rest of Asia achieve a net interest margin of 2.9
percent. Australia and China, on the other hand, has net interest margin of 2.3 and 2.2,
respectively. Europe and Japan both have lower interest margins. Mizuho, Credit Agricole,
Citigroup, HSBC and UBS have net interest margins that reflect their regions. Note that the
high margins of HSBC and Citigroup, well above the world average of 1.7, reflect in part
higher risk lending that achieves high spreads over cost of funds.

The expense ratio measures operational efficiency by comparing overheads to total revenues
3
The 1988 Capital Accord, entitled “Basel Committee on Banking Supervision. International convergence of
capital measurement and capital standards” and subsequent amendments, is frequently referred to collectively as
Basel I. In June 2004 the Basel committee released “International convergence of capital measurement and
capital standards: a revised framework” informally called Basel II.
4
Risk weighting calculates the amount of credit risk exposure the bank is deemed to face by Basel from a total
position. The amount is calculated by weighting the value of each asset by its regulatory risk weighting. For
example, under Basel I own-government obligations are risk weighted zero, interbank loans are risk-weighted
20 percent, retail mortgage loans are risk weighted 50 percent and other on balance sheet assets 100 percent.
Off-balance sheet exposures are weighted to calculate a credit equivalent amount and then risk weighted.

9
(the sum of net interest income and non-interest income). Wages make up the largest single
overhead expense. According to this measure, China has the most efficient banks in the
world, reflecting in part its relatively low salary levels. By the same token, the poorer
efficiencies in North American and Europe is partly due to their higher overall salaries.
Three of the top five banks have expense ratios that are higher than the world average of
61.2. HSBC and Mizuho are the most efficient among the top five.

Liquidity

We started this overview with the observation that banks provide society with liquidity;
hence, it is not surprising that banks book liquidity risk in the process. We use three
measures of liquidity risk: the interbank ratio, loans to deposits and liquid assets to deposits.

The interbank ratio is the money lent to other banks divided by money borrowed from other
banks expressed as a percent. If one views customer deposits as core funding, a stable source
of funds, then the liquidity risk of banks can be expressed as the degree to which banks rely
on interbank (i.e., wholesale) funding. Using this perspective, if banks place in the interbank
market all funds sourced from retail deposits not used to fund lending to the non-financial
sector, and if banks source from the interbank market all funds in excess of their retail
deposits necessary to make loans, then the interbank ratio would be a sufficient statistic to
measure liquidity. An interbank ratio greater than 100, means that the bank is a net liquidity
provider to the banking sector whereas an interbank ratio smaller than 100, implies that the
bank is a net liquidity buyer. Within the largest banks of the world, the average interbank
ratio is 74.6: these large banks in aggregate are net borrowers from the interbank market,
relying on smaller banks, postal savings banks, credit unions etc to supply them with the
funding necessary for their lending portfolios. In China, however, the large banks are
characterized by large branch networks and place twice as many funds in the nascent
renminbi interbank markets as they borrow. In the rest of Asia, interbank ratios are also high.
HSBC, with strong retail branch network in Hong Kong, the UK and North America also has
an interbank ratio of nearly 200.

The two remaining ratios, loans to deposits and liquid assets to deposits (often called reserves
to deposits) view all deposits as identical, whether they are retail or wholesale, customer
deposits or bank deposits. In the former ratio, all loans are considered equally illiquid and in
the latter, all reserve assets are considered equally liquid. This is clearly a strong assumption,
because some loans are highly marketable, while others are truly illiquid. Moreover, clearing
deposits are far more liquid than certain money market securities, but they are all considered
as liquid assets. A high loans to deposit ratio and a low liquid assets to deposits ratio indicate
low liquidity. The world average of loans to deposits is 68.5 and liquid assets to deposits is
21.0. The Australian banks appear to be the least liquid. UBS appears to be very liquid when
considering loans to assets but illiquid when considering liquid assets to deposits. This
effect,, however, is caused by marketable securities occupying a high portion of its assets. A
similar distortion occurs with Citigroup, where deposits are a lower proportion of funding,
leading to both the loans to deposits and the reserves to deposits appearing large. The analyst
must exercise caution in interpreting these and other ratios bearing in mind bank- and
country-specific the portfolio composition, operations and environment.

10
Table 3: Financial Ratios of Regional Bank Averages (2004)
China Japan Rest of Europe North Australia World
Asia America Average
Assets Quality
Loan Loss Reserve / Gross Loans 1.7 2.2 1.9 2.2 1.4 0.9 2.0
Loan Loss Reserve / Impaired Loans 11.0 64.6 112.8 77.8 185.0 255.9 70.0
Impaired Loans / Gross Loans 15.5 3.4 1.7 2.8 0.8 0.4 2.9
Loan Loss Provisions / Net Interest Revenue 23.7 52.2 25.1 13.8 9.2 7.3 16.2

Capital Adequacy
Basel Tier 1 Capital / Risk Assets 8.5 5.8 8.6 8.2 9.7 7.3 8.1
Basel Total Capital / Risk Assets 10.1 11.1 11.9 11.6 13.4 10.2 11.8
Equity / Total Assets 3.8 4.0 7.6 4.1 8.2 7.3 5.0

Profitability and Efficiency

Return On Average Assets 0.4 0.2 1.0 0.5 1.1 0.9 0.6
Return On Average Equity 11.6 4.6 12.6 12.0 13.6 12.9 11.8
Net Interest Margin 2.2 1.0 2.9 1.3 2.9 2.3 1.7
Expense Ratio 45.1 54.1 51.5 63.7 63.8 56.7 61.2

Liquidity
Interbank Ratio 205.1 98.1 196.1 76.4 46.5 85.2 74.6
Net Loans / Deposits & Short-term Funding 65.3 62.1 74.8 68.4 70.0 100.6 68.5
Liquid Assets / Deposits & Short-term Funding 10.5 8.8 22.7 23.5 27.5 8.9 21.0

Table 4: Financial Ratios of the Largest Five Banks in terms of Assets (2004)
UBS Citigroup Mizuho HSBC Credit
Agricole
Assets Quality
Loan Loss Reserve / Gross Loans 1.9 1.9 1.8 1.9 3.1
Loan Loss Reserve / Impaired Loans 131.2 150.8 74.7 120.6 75.4
Impaired Loans / Gross Loans 1.5 1.3 2.4 1.5 4.0
Loan Loss Provisions / Net Interest Revenue -2.3 13.9 14.6 20.1 15.7

Capital Adequacy
Basel Tier 1 Capital / Risk Assets 11.8 8.7 6.2 8.9 7.9
Basel Total Capital / Risk Assets 13.6 11.9 11.9 12.0 10.4
Equity / Total Assets 2.3 7.5 3.6 7.8 5.3

Profitability and Efficiency

Return On Average Assets 0.5 1.2 0.5 1.1 0.5
Return On Average Equity 21.3 15.6 14.4 13.9 8.5
Net Interest Margin 1.1 3.7 0.9 3.1 1.2
Expense Ratio 73.3 65.4 56.9 53.9 72.1

Liquidity
Interbank Ratio 75.2 95.8 70.8 191.6 67.5
Net Loans / Deposits & Short-term Funding 22.7 73.7 57.7 76.4 68.4
Liquid Assets / Deposits & Short-term Funding 8.5 68.5 6.7 20.4 20.2
Note: · Names of banks included in computing the territorial averages are included in appendix 2
· Definition of ratios are included in append 3

11
APPENDIX 1:DEFINITION OF ACCOUNTS

Liquid Assets Other Bonds

Cash and Due from Banks Other Funding
Deposits with Banks
Due from Central Banks Other Liabilities
Due from Other Banks Other Liabilities
Due from Other Credit Institutions Subordinated Debt
Trading Securities Other Non-equity Reserves
Government Securities General Loan Loss Reserves
Other Bills
CDs Total Equity
Treasury Bills Hybrid Capital
Minority Interests
Other Assets General Banking Risk
Listed Securities Preference Shares
Equity Investments Common Shares
Investment Securities Other Equity Reserves
Non-Listed Securities Retained Earnings
Other Securities
Bonds Net Interest Revenue
Other Investments Interest Received
Deferred Tax Receivable Interest and dividends on debt securities
Other Non Earning Assets Interest received
Intangible Assets Other dividend income
Interest Paid
Loans, Net Interest paid
HP / Lease
Loans to Other Corporate Other Operating Income
Loans to Group Companies / Associates Fees and commissions receivable
Mortgages fees and commissions payable
Loans to Municipalities / Government Foreign exchange trading
Loans to Banks Securities trading
Trust Account Lending Other / Derivatives trading
Other Loans Sundry operating income
Overdue Loans Investment securities gains
Restructured Loans Other non-banking income
Other non-performing Loans
Loan Loss Reserves Overheads
Loan Loss Reserves (Previously Deducted) Personnel Expenses
Amounts written off fixed asset investments
Fixed Assets Other non-interest expenses
Land and Buildings Depreciation
Other Tangible Assets Provisions for contingencies and commitments

Deposits & Short-term Funding Loan Loss Provisions

Deposits - Demand Specific loan loss provision
Deposits - Savings General loan loss provision
Banks Deposits
Municipalities / Government Deposits Other
Other Deposits Income from associates
Certificates of Deposit
Debt Securities
Commercial Paper
Mortgage Bonds
Convertible Bonds
Other Negotiable Instruments
Other Securities

12
APPENDIX 2: NAME OF BANKS INCLUDED IN THE COMPUTATION OF REGIONAL
AVERAGES

Name of Banks Included in the Computation of Bayerische Landesbank

Regional Averages: DZ Bank Deutsche Zentral-Genossenschaftsbank
Landesbank Baden-Wurttemberg
China Dresdner Bank
HSH Nordbank
Bank of China Eurohypo
China Construction Bank Norddeutsche Landesbank Girozentrale
Industrial and Commmerical Bank of China Allied Irish Banks
Agricultural Bank of China Bank of Ireland
Banca Intesa
Japan UniCredito Italiano
SanPaolo IMI
Mitsubishi Tokyo Financial Group Capitalia Gruppo Bancario
Mizuho Financial Group Banca Monte dei Paschi di Siena
Sumitomo Mitsui Financial Group BNL-Banca Nazionale del Lavoro
UFJ Holdings ABN AMRO Bank
Norinchukin Bank Rabobank Group
Resona Holdings ING Bank
Sumitomo Trust & Banking DnB NOR Group
Shinkin Central Bank Santander Central Hispano
Shoko Chukin Bank Banco Bilbao Vizcaya Argentaria
Mitsui Trust Holdings Caja de Ahorros y Pen. De Barcelona - la Caixa
Caja de Ahorros y Pen. De Barcelona - la Madrid
Rest of Asia Banco Popular Espanol
Nordea Group
HSBC Holdings PLC Svenska Handelsbanken
State Bank of India Skandinaviska Enskilda Banken
Kookmin Bank ForeningsSparbanken (Swedbank)
DBS Bank UBS
Credit Suisse Group
Europe Royal Bank of Scotland
HBOS
Erste Bank Barclays Bank
Fortis Bank Lloyds TSB Group
Dexia Standard Chartered
KBC Bank
Danske Bank North America
Nykredit Group
Credit Agricole Scotiabank
BNP Paribas Royal Bank of Canada
Groupe Caisse d'Epargne Bank of Montreal
Societe Generale Toronto-Dominion Bank
Groupe Banques Populaires Canadian Imperial Bank of Commerce
Deutsche Bank AG Citigroup
HypoVereinsbank JP Morgan Chase & Co.
Commerzbank Bank of America Corp

13
Wells Fargo & Co.
Wachovia Corporation Australia
Washington Mutual
U.S. Bancorp National Australia Bank
MBNA Corp ANZ Banking Group
Countrywide Financial Corporation Commonwealth Bank Group
National City Corp Westpac Banking Corporation
SunTrust Banks
Fifth Third Bancorp (Note: 4 of the top 100 institutions, including
Capital One Financial Corporation Credit Mutuel of France, Metlife and John
Golden West Financial Group Hancock of the U.S.A., Banco Itau Holding
KeyCorp Financeira of Brazil, as listed in The Banker’s
BB & T Corp survey have been excluded in the computation due
Bank of New York to unavailability of detailed information
Regions Financial Corp
PNC Financial Service Group
Desjardins Group

14
APPENDIX 3: DEFINITIONS OF RATIOS

Asset Quality

Loan Loss Reserve

Loan Loss Reserve / Gross Loans = ×100
Loans + Loan Loss Reserve

Loan Loss Reserve

Loan Loss Reserve / Impaired Loans = ×100
Impaired Loans

Impaired Loans
Impaired Loans / Gross Loans = ×100
Loans + Loan Loss Reserve

Loan Loss Provisions

Loan Loss Provisions / Net Interest Revenue = ×100
Net Interest Revenue

Capital Adequacy

Tier 1 Capital
Tier 1 Capital / Risk - weighted Assets = ×100
Risk - weighted Assets

Total Capital
Total Capital / Risk - weighted Assets = ×100
Risk - weighted Assets

Equity
Equity / Total Assets = ×100
Total Liability & Equity

Profitability and Efficiency

Net Interest Revenue

Net Interest Margin = ×100
Total Earning Assets

Net Income
Return on Average Assets = ×100
Total Average Assets

Net Income
Return on Average Equity = ×100
Equity

Overheads
Expense Ratio = ×100
Net Interest Revenue + Other Operating Income

Liquidity

Due from Banks

Interbank Ratio = ×100
Due to Banks

Loans
Net Loans / Total Assets = ×100
Total Assets
 Loans
Net Loans / Deposits & Short - term Funding = ×100
Customer & Short - term Funding

Liquid Assets
Liquid Assets / Deposits & Short - term Funding = ×100
Customer & Short - term Funding