Revelation: ICBCs way to global No.1 deposit bank

By Wang Zhi

Till March 31, the total deposit balance of all customers of Industrial and Commercial Bank of China (ICBC) has exceeded RMB8.9 trillion yuan, over RMB950 billion yuan than that of the beginning of 2009, and ICBC thus becomes the No.1 deposit bank in the world. With Financial deposits included, the deposit of ICBC totals up to RMB9.7825 trillion yuan, equal to US$1.44 trillion, which has a long lead.

In recent years, occidental large banks quickly enlarge their capital and deposit substantially through continuous mergers and acquisitions. The deposit of J.P Morgan Chase Bank, which ranks the first in deposit in the American banking industry, reached a record-breaking US$1.0093 trillion yuan by the procurement of the Washington Mutual, the largest deposit bank in the U.S. Businesses of ICBC basically give priority to endogenous development. Under such an environment, it is more noticeable for ICBC to become the commercial bank with largest deposit. Meanwhile, due to the international financial crisis, banks worldwide have begun to re-evaluate the significance of deposit business presently, and the presentation of ICBC will definitely attract the extensive attention at home and abroad, inside and outside the industry.

Analysts point out that the steady growth of customer deposit of the Chinese commercial banks represented by ICBC really reflects the rapid and healthy development of the Chinese economy and the sustaining accumulation of the social wealth. Because compared with other macroeconomic indicators, the increase of customer deposit could demonstrate the developing status of the economy and financing more directly, and reflect the increase of the wealth income and cash flow of the people and enterprises of a certain country. The reason why ICBC can stand out in the numerous banks and become the commercial bank with the largest customer deposit in the world should be attributed to its strong and solid customer basis and convenient service channel and outstanding brand reputation.

As a fundamental business of commercial banks, customer deposit is always the most important capital source of the banks. Since the entry of the new century, when some occidental banks select their profit modes, different understandings occur in terms of customer deposit, thus two different developing modes are shaped up in banks worldwide. Some occidental commercial banks and investment banks adopt the active liabilities mode, which no longer takes the customer deposit as their main source of capital, and obtain capital by means of other financing tools like active issuance of bonds and notes. Another mode is the steady developing mode adopted by the Chinese commercial banks represented by ICBC. Typically, with the premise of the fundamental position of deposit, a bank with such a profit mode controls the deposit cost comparatively well and shunts and efficiently manages customer deposit through financing businesses, on the other hand, it tries to transform its business mode and developing mode, continuously expands the area of loan and adjust the structure of loan, and makes efforts to develop intermediary services to expand the source of income simultaneously.

The most remarkable difference between the two methods lies on the asset-liability ratio. For instance, the customer deposit of ICBC takes up around 83 percent of its total assets, and around 88 percent of the total liability, but for occidental commercial banks adopting active liabilities mode, the customer deposit basically takes up below 50 percent of its total assets. In 2008, the loan-to-deposit ratio of ICBC was only 55.6 percent, but that of banks with active liabilities mode is generally around 100 percent, and for some of them, the figure is near 150 percent. Before the outbreak of the international financial crisis, since the financing market runs stably with full liquidity and comparatively low financing cost, the two modes are basically equal to each other. But when the international financing crisis broke out, the liquidity of the financial market shrank quickly, and banks with active liabilities mode suddenly found that the cost of the previously low-cost funds which is easy to get now rises substantially or even untouchable. At that time, on the one hand, due active liabilities are redeemed in advance. On the other hand, the holding assets cannot be realized at the expected price, and the market becomes unilateral all at once, which brings fatal attack at these banks. However, banks with steady developing mode perform quite stably because they have their reliable capital sources and do not rely on market financing.

With the present international financial crisis, the significance of deposit for liquid management of banks is recognized again. At present, almost all commercial banks worldwide have a tendency to emphasize on the deposit business again, for instance, some former giants of investment banks like US Goldman Sachs Investment Bank and Morgan Stanley are changing themselves into commercial bank groups which can absorb public deposit. Deutsche Bank AG, the model of European full-service banks, bought the affiliates of Deutsche Postbank AG, and energetically strengthens its deposit business. This may be called a kind of "return" or "correction".