OREANDA-NEWS. November 22, 2013. The Financial Stability Board (FSB), an international organization monitoring and coordinating the world's financial systems, published its annual update of the list of global systematically important banks (G-SIBs). ICBC has been added to the list, bringing the overall number from 28 to 29.

Global systematically important banks are global financial institutions playing a critical role in the international financial market, whose material risk exposures or business failure would cause significant impact and even systematic risks to the global economy and financial systems. Hence, they are considered "Stabilizer" to all banks worldwide. Among the 29 global systematically important banks in the list, 16 are European banks, 8 US banks and 5 banks from Asia.

In November 2011, FSB entrusted Basel Committee on Banking Supervision ("Basel Committee") to develop policy measures which include a methodology for assessing systemic importance of G-SIBs, comprising both quantitative and qualitative indicators. The assessment methodology for G-SIBs is based on 12 indicators. Each indicator is grouped into one of the five categories of systemic importance, which are size, interconnectedness, substitutability, complexity and global (cross-jurisdictional) activity. The Basel Committee will assess the systemic importance of G-SIBs ever year. Banks above the threshold are considered as candidates. The final list is announced by the FSB once approved by G20 Summit.

The Basel Committee divided the 29 G-SIBs into four buckets according to their scores on systemic importance. Each bucket has its own capital surcharge from 1% to 2.5%. ICBC is in Bucket 1 with 1% additional capital requirement. Under Basel III (a global regulatory standard on bank capital adequacy), the leverage ratios of minimum Core Tier 1 capital and total capital for internationally active banks are 7% and 10.5% respectively, and the required ratios for ICBC to become a G-SIB are 8% and 11.5% respectively. From the data of the first half 2013, ICBC's capital ratios were 13.11% for core capital, 10.48% for both core tier-1 capital and tier-1 capital, far above the minimum requirement and leaving higher safety margins. In other words, ICBC has no need to raise more capital to qualify itself as a G-SIB.

There are three main reasons for ICBC to be named as a global systematically important bank this year:

First, ICBC is world leading in all major indicators. At present, ICBC is the world's largest bank in terms of total assets, deposits, loans, tier-1 capital, market value and profitability. ICBC is the world's biggest company in Forbes (US)'s 2013 ranking of the world's 2000 largest corporations by the measures of sales revenue, profit, assets and market value. ICBC heads the list of commercial banks in Fortune's ranking of world's 500 largest corporations by total revenue. In The Banker's ranking of Top 1,000 World Banks by the measure of tier-1 capital, ICBC is the world's largest bank with a tier-1 capital of USD 160.6 billion. This is also the first time a Chinese bank has come atop the list over the last five decades.

Second, ICBC’s sound overseas development is a key factor. For the period ended June this year, ICBC's overseas assets reached USD 182.2 billion and its share of the Group's total assets rose to 6%. Today, ICBC's global network comprising about 400 overseas branches spans 39 countries/territories. Additonally, as the single largest shareholder of the Standard Bank of South Africa (a major bank in Africa), ICBC works closely with financial institutions in 18 African countries. Based on this, ICBC has gradually shifted its globalization strategy to localized, mainstream and differentiated development. Overseas branches of ICBC are increasing their activities in local markets through the launch of key products and close interactions between domestic and overseas branches. The goal is to increases the competitiveness and management of ICBC’s overseas branches. In the first half of 2013, ICBC’s overseas branches post USD 1.07 billion in profit before tax, an increase of 23.8% over the same period a year ago.

Furthermore, the accelerating pace of RMB internationalization also increases ICBC's systemic importance. A report published by the Society for Worldwide Interbank Financial Telecommunication ("SWIFT") in October shows that RMB has already overtaken the Swedish krona, the South Korean won and the Russian rouble as the world’s eighth most actively traded currency. In the first nine months of the year, ICBC processed 1.5 trillion yuan in cross-border RMB transactions, up 33.42% year-on-year. ICBC's RMB-clearing network has grown to cover 70 countries/territories worldwide. Cross-border RMB service is available in all ICBC overseas institutions, under the permission of local regulatory authorities. On February 8, 2013, the People's Bank of China authorised ICBC’s Singapore Branch as the RMB clearing bank in Singapore. This is the first time the central bank has designated a Chinese RMB clearing bank in a foreign country. All RMB clearing services have been running smoothly at Singapore RMB clearing bank since opening on May 27, marked by high growth in clearing volume. As of today, clearing volume at Singapore RMB clearing bank has reached over 1 trillion yuan. The strong momentum is supported by a clearing network spanning 31 countries/territories.

Industry insiders said the inclusion of two Chinese banks into the list of global systematically important financial institutions demonstrates the international recognition to China's economic and financial reforms. To Chinese banks, this means closer supervision internationally and further engagement in the fierce global competition.