The operating efficiency of lenders in mainland China and India eroded over the 12 months ended March 31 due to rising operating expenses, according to S&P Global Market Intelligence.
It said that the Indian banks’ aggregate cost-to-income ratio, a key measure of operating efficiency, rose to 57.08% for the 12 months from 48.65% in the previous year.
The median cost-to-income ratio of lenders in mainland China increased to 33.13% from 31.64%.
The median efficiency ratio of banks in South Korea and Australia also increased amid net interest margin (NIM) compression.
Bucking the trend, Singaporean and Japanese lenders posted minor gains as their cost-to-income ratio edged lower.
S&P Global Market Intelligence said that despite a rise in the median cost-to-income ratio, mainland China is still home to several of the most efficient banks in Asia-Pacific.
Bank of Shanghai Co. Ltd. was the most efficient of the region’s 50 largest banks by total assets in the year ended March 31.
Its cost-to-income ratio fell to 24.05% from 24.98%. In total, 23 mainland China banks featured on the list, and the cost-to-income ratios of 18 of them were under 36%, the data shows.
Decline in margins and higher costs dragging on Indian banks’ efficiency.
S&P Global said that in India, the interest rates are widely believed to have peaked and are expected to fall.
RBI held its policy rate steady for more than a year following a series of hikes since early 2022. This is expected to pressure Indian banks’ margins.
Simultaneously, Indian lenders invested heavily in expansion, opening new branches, adding customers and boosting technology infrastructure to ride the fastest-growing major economy in the world. An expected decline in margins and higher costs are dragging on banks’ efficiency.
