Several of the biggest banks in mainland China and Japan slipped on cost-to-income ratios, a measure of efficiency, in the first quarter as economic growth remained tepid, according to S&P Global Market Intelligence data.

The cost-to-income ratio measures a bank's operating expenses as a percentage of its income. A lower ratio indicates higher efficiency. Banks in mainland China have among the lowest cost-to-income ratios among Asia-Pacific lenders.

Economic headwinds weighed on some Chinese banks' profit growth, causing their cost-to-income ratios to rise. Postal Savings Bank of China Co. Ltd. saw its cost-to-income ratio rise 4.22 percentage points to 56.84% as of March 31, compared with 52.62% as of March 31, 2022. Industrial and Commercial Bank of China Ltd., the world's largest bank, saw its ratio rise 1.76 percentage points to 21.84%. Sumitomo Mitsui Financial Group Inc.'s cost-to-income ratio rose to 69.64% from 62.86% a year ago.

However, Agricultural Bank of China Ltd. saw an improvement in the ratio to 26.35%, from 32.74%, while Bank of China Ltd.'s cost-to-income ratio fell 3.32 percentage points to 32.32%.

Marathon

Chinese lenders have enjoyed fast asset and income growth fueled by rapid economic growth in recent years, but as the world's second-biggest economy slows, costs may outpace profits, said Gary Ng, senior economist at Natixis. "It is a marathon between costs and profits," Ng said.

Japanese lenders' cost-to-income ratios were also strained by sluggish local demand. Sumitomo Mitsui Financial Group Inc.'s cost-to-income ratio rose to 69.64% in the first quarter, from 62.86% a year ago, while Mitsubishi UFJ Financial Group Inc. saw a 4.3 percentage point increase in its ratio to 66.24%, Market Intelligence data showed.

In Japan, slow loan demand and low returns are behind the falling income of Japanese lenders, Ng said. "Reliance on [the] traditional banking model with branches and the stickiness to retain staff are behind the high costs."

The aggregate cost-to-income ratio of Chinese lenders rose to 34.54% at the end of 2022, from 32.72% in the prior year. The aggregate measure for Japanese lenders stood at 63.33% at the end of the financial year ended March 31, up from 62.78% in the year-ago period.

Singapore, Korea improve

Banks in Singapore and South Korea, meanwhile, reported lower cost-to-income ratios thanks to an economic rebound and higher profits. DBS Group Holdings Ltd., Southeast Asia's largest lender, saw its ratio fall 6.23 percentage points to 37.65%. Rival Oversea-Chinese Banking Corp. Ltd. logged an improvement in its ratio to 35.15%, from 42.46%.

Among South Korean lenders, KB Financial Group Inc.'s ratio dropped 11.30 percentage points to 45.95%, while Hana Financial Group Inc. showed an 8.10-percentage-point improvement to 48.67%.