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As a young man during China’s Cultural Revolution, Jiang Jianqing was sent to the countryside to work as a farmer and a coal miner. This week, he arrives at the top of a Swiss mountain as chairman of the world’s most-profitable bank and representative of the most-populous nation.
The head of Industrial & Commercial Bank of China Ltd. is the first Chinese banker to serve as a co-chairman of the annual meeting of the World Economic Forum in Davos. The recognition highlights the increasing prominence on the global stage of the country’s state-controlled banks, which have added as many assets over the past five years as are held by all U.S. lenders combined. As China’s financial champions expand, Western banks are grappling with stagnant revenue and mounting legal costs tied to fines and settlements.
“The growing importance of Chinese banks at Davos reflects the coming of age of the Chinese economy and banking sector,” said Sandy Mehta, Hong Kong-based chief executive officer of Value Investment Principals Ltd. “Economic data from China now moves markets globally, reflecting the significance of China as a global growth engine.”
In the past three years, co-chairmen of the Davos meeting from the financial industry have included UBS AG Chairman Axel Weber, former Citigroup Inc. CEO Vikram Pandit and Standard Chartered Plc CEO Peter Sands.
“Chinese banks are at a position that our global peers aspire to reach,” Jiang, who will turn 61 next month, wrote in the January issue of China Finance magazine, which is affiliated with the nation’s central bank. “Accompanying our giant size is enormous pressure.”
The pressure comes from mounting bad loans as China’s leaders promise to allow the marketplace to drive that economy and a five-year credit boom fueled by the country’s state-controlled lenders threatens to come to an end.
The son of a Shanghai doctor, Jiang was dispatched to work in the fields like millions of other Chinese during the Cultural Revolution in the 1960s. After six years farming in Jiangxi province from the age of 17, he labored in a coal mine in Henan province for almost three years before returning to Shanghai in the late 1970s and joining ICBC as an accountant, Jiang said in a 2008 interview with Bloomberg News.
Jiang, who declined to be interviewed for this article, has spent his career at Chinese commercial banks, mostly with Beijing-based ICBC. He graduated from Shanghai University of Finance and Economics with a degree in accounting in 1984 and received a master’s degree in engineering and a doctorate in management from Shanghai Jiaotong University.
Special Report: 2014 World Economic Forum in Davos, Switzerland
At 47, he became the youngest head of China’s four state-owned banks. Under his 13-year leadership, ICBC was transformed from an almost insolvent firm with borrowers behind in repaying about half of their loans into a lender with a delinquency ratio of less than 1 percent, official data show.
“Jiang is very professional and has good integrity,” Liu Mingkang, former chairman of the China Banking Regulatory Commission, said today in an interview in Davos. “He focuses on being a banker, instead of thinking about other career opportunities like some of his peers may have done. ICBC is one of the strongest banks in China and has a culture of cautious management.”
ICBC earned 238.5 billion yuan ($39 billion) in 2012, followed by China Construction Bank Corp. (939)’s 193 billion yuan. JPMorgan Chase & Co. (JPM:US) had a $21 billion profit that year.
Jiang championed the use of technology to transform ICBC into a modern bank and built a nationwide credit system in the early 2000s to improve its lending transparency and reduce influence from local governments, said Keith Pogson, Hong Kong-based senior partner of financial services in the Asia-Pacific region at Ernst & Young LLP, ICBC’s auditor until 2012, who has known Jiang for more than a decade.
“Some people may say Chinese banks are successful due to the country’s system of built-in interest-rate margins,” Pogson said. In China, the government sets benchmark rates for loans and deposits, allowing lenders a spread of about 3 percentage points. “But Jiang did make a difference to ICBC and helped the bank to stand out as a national champion,” he said.
ICBC, which has a market value of $204 billion, achieved average annual profit growth of 31 percent from 2006, when it became publicly traded, through 2012, faster than its three biggest domestic competitors. HSBC Holdings Plc (HSBA), the largest bank in Europe, had average profit growth of 15 percent during the period, while JPMorgan, the biggest U.S. bank by assets, recorded 20 percent annual increases, according to data compiled by Bloomberg.
In November, ICBC was added to the Financial Stability Board’s list of too-big-to-fail banks required by global regulators to hold extra capital to prevent another crisis.
“The challenge now is how to maintain our core competitiveness and the status as a leading bank in the world,” Jiang said in an interview at the National People’s Congress in March. “I’m feeling a lot of pressure.”
Jiang said he tries to eke out time to play Ping-Pong every week and swims occasionally to stay healthy.
In 2012, his salary was 2 million yuan including 584,500 yuan to be distributed over three years from 2013, depending on his performance, according to an exchange filing by ICBC in July. That compares with the $23 million JPMorgan paid its chief Jamie Dimon in 2011.
As he gets closer to retirement age -- typically 65 for top officials in China -- Jiang faces slower profit growth, mounting soured loans and a squeeze on net interest margins amid government efforts to break the monopoly of big state banks.
China ramped up lending by ICBC and other state banks after the 2008 financial crisis to prevent an economic slowdown. Lenders expanded their assets by about $14 trillion in the five years through Sept. 30, government data show. By comparison, U.S. commercial banks held $14.6 trillion of assets at the end of September, according to the Federal Deposit Insurance Corp.
Investors are increasingly concerned that the country’s investment through borrowing since 2008 threatens to trigger a financial crisis, Haitong Securities Co. said this month. Liabilities at nonfinancial companies may increase to more than 150 percent of gross domestic product in 2014, raising default risks, according to the firm, China’s second-biggest brokerage. The ratio of 139 percent at the end of 2012 was already the highest among the world’s 10 biggest economies.
ICBC and its four largest competitors more than tripled the amount of bad loans they wrote off in the first half of last year, filings show. Nonperforming loans at ICBC increased for three consecutive quarters to 87.4 billion yuan, or 0.91 percent of total loans, as of Sept. 30.
Meanwhile, two surges in money-market rates hit the country’s interbank market last year, with the seven-day repurchase rate reaching 10.8 percent in June and 8.8 percent last month. The rise in borrowing costs followed a government crackdown on shadow banking, including off-balance-sheet wealth-management products, and squeezed lenders reliant on such short-term funding for long-term loans.
Last week, ICBC rejected calls to bail out a high-yield investment product, known as a trust, a bank official with knowledge of the matter said, stoking concern that defaults may be looming.
ICBC ceded its title as the world’s most-valuable bank last year for the first time since 2006, with market value falling below Wells Fargo & Co. (WFC:US), the largest U.S. home lender, and New York-based JPMorgan. ICBC’s profit growth may have slowed to 8.4 percent in 2013, from 14.5 percent in 2012, amid rising defaults and a margin contraction, data compiled by Bloomberg show.
Goldman Sachs Group Inc. in May ended a seven-year investment in ICBC, after reaping about $12 billion in sales proceeds and dividends from its investment, joining Citigroup and Bank of America Corp. in cutting holdings in Chinese banks.
Investors are also questioning growth in emerging markets as economies cool and delinquent loans surge from Turkey to South Africa. The MSCI Emerging Markets Banks Index dropped 7.4 percent last year compared with a 21 percent gain for the MSCI World Banks Index, which tracks lenders in developed markets.
Even so, ICBC stands out from its domestic competitors. The lender’s bad-loan ratio of 0.91 percent was the lowest among China’s four largest banks, which are all ranked among the world’s top 10 both by value and profitability.
Jiang has embarked on an overseas expansion as demand for offshore financial services surges along with the presence of Chinese companies abroad and increasing use of the yuan. Since 2007, he has spent about $7 billion on more than 10 acquisitions from South Africa to the U.S. as he seeks to triple the proportion of profit coming from outside China to 10 percent.
“Chinese banks benefit from enormous domestic savings and are looking around the world to lend,” said Ernst & Young’s Pogson. “To diversify away from the domestic market, they are starting to compete aggressively on the world stage.”
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