Industrial & Commercial Bank of China Ltd ceded its title as the world's largest bank by market value to HSBC Holdings Plc after shrinking by US$241 billion in less than a year as the nation's equity bubble burst.

ICBC fell by the 10 percent daily limit in Shanghai and 8.1 percent in Hong Kong yesterday, taking its market capitalization to US$169 billion, US$9 billion less than London-based HSBC. The Chinese bank overtook Citigroup Inc by value in July last year and peaked at US$410 billion in October.

Investors, rattled by an 11-month slump in Chinese stocks, overlooked ICBC's success in avoiding most of the US$516 billion of global credit market losses and focused instead on a slowing domestic economy. Chinese banks may have to contend with "zero" growth next year, according to Credit Suisse Group, after profits surged an average 118 percent in 2007, according to Bloomberg News.

"ICBC has a lot of things to learn as it has never gone through any major tests," said Shao Zeyang, who helps oversee about US$994 million at Fortune SGAM Fund Management Co in Shanghai, including ICBC shares. "The Chinese economy is now at a turning point and investors want to stay away from the banking stocks."

Most profitable

Chairman Jiang Jianqing has more than doubled ICBC's profit since it got a government bailout in 2005, riding economic growth of more than 10 percent a year. ICBC earned a record 64.5 billion yuan (US$9.42 billion) in the first half to become the world's most profitable bank.

That hasn't helped ICBC's shares, which slumped 58 percent in Shanghai this year - a steeper drop than for Citigroup, the global leader in credit market losses with US$55.1 billion. ICBC has written off US$702 million. HSBC's tally is US$27.4 billion.

Analysts at Goldman Sachs Group Inc, JPMorgan Chase & Co and Merrill Lynch & Co have downgraded Chinese banks in the past week, citing less profitable lending and higher credit costs in a slowing economy.

The central bank's surprise cut in its key one-year lending rate on Monday is a "clear negative" for Chinese banks as it will make loans less profitable, Credit Suisse said on Tuesdsay.

(Shanghai Daily September 18, 2008)