ICBC

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Big is bewitching. Before the crunch, the sheer size of some institutions was an encumbrance to rational analysis. As Chuck Prince or Sir Fred Goodwin celebrated double-digit growth in assets, few observers – least of all the respective boards of Citigroup and Royal Bank of Scotland – had the wit or inclination to mine reams of data for structural flaws.

What, then, to make of Industrial & Commercial Bank of China, now the world's biggest bank by any metric you care to mention? No other lender comes close to the bank's net income of $5.2bn in the first quarter. Deposits of about $1,400bn have nudged past Japan's MUFG and JPMorgan, the bank said last week. Market capitalisation? A whisker away from $200bn. That's 60 per cent bigger than the nearest US outfit (JPMorgan), and 11 times bigger than Citi.

But while things seem tickety-boo on the surface – non-performing loans actually fell 2 per cent from the fourth quarter – trouble surely awaits. ICBC almost quadrupled loan volumes in the first quarter, year on year; number two, China Construction Bank, merely tripled them, while at Bank of China they doubled. Similar state-directed lending splurges in the 1990s left companies laden with capital equipment they barely needed, and too much debt. On Deutsche Bank estimates, China's stimulus actually needs less than $150bn of annual lending. ICBC supplied two-thirds of that in the first quarter alone. Loan growth is outpacing deposit growth by about 2.5 to 1.

Still, China's loan-classification system gives lenders an unusually long period of grace before recognising losses. And the equity valuation is no great stretch: on just over 10 times next year's earnings, it is inexpensive both against Asian peers and its historical levels. While faith in China's ability to spend its way out of a slump endures, so should ICBC's grip on the top spot – however many bogeymen are lurking.

kenyco