The throne of bank market value, competing in the cycle

The milestone event in the banking industry is undoubtedly the recent competition between the Industrial and Commercial Bank of China (ICBC) and the Agricultural Bank of China (ABC) for market capitalization rankings.

On September 4, the total market capitalization of ABC (A+H) surpassed 2.55 trillion yuan, historically overtaking ICBC to become the largest bank in the world by market capitalization.

In the following days, ICBC and ABC took turns at the top of the market capitalization rankings. By the close on September 11, after regaining the throne of market capitalization, ICBC had expanded its lead to 18 billion yuan.

As of the first half of 2025, ICBC still holds the top position among the four major banks with total assets of 52.32 trillion yuan, while ABC ranks second;

In terms of performance, ICBC leads the industry with revenue of 409.082 billion yuan and a net profit attributable to shareholders of 168.103 billion yuan, while ABC ranks third.

The competition between the two for the "throne" remains focused on changes in market capitalization;

However, whether ABC can challenge ICBC's long-standing position as the "market capitalization king," its surpassing of ICBC's market capitalization has already become a phenomenal event in the competition among major banks—after all, ten years ago, ABC's market capitalization was still at the bottom among the four major banks, less than 70% of ICBC's market capitalization.

ABC's phased pursuit of ICBC in this changing landscape is both a strategic and operational advancement and a reflection of the county-level resource endowment in the banking industry, which has fermented advantages during the down cycle amid balance sheet contraction and narrowing interest margins.

The soaring market capitalization of ABC from 2022 to 2025 coincides with three years of overall pressure and difficult climbs for the banking sector.

Three years later, the banking industry has still not escaped the shadow of the cycle; however, ABC's continuous "planting seeds" in county-level finance under pressure has taken root and sprouted, perhaps becoming one of the driving forces behind its record-high market capitalization.

Ten Years of Positioning

By examining the changes in market capitalization of the four major banks over nearly a decade, one can more intuitively feel the rapid growth of ABC's market capitalization today.

From 2015 to 2017, the monetary policy for shantytown redevelopment injected a large amount of liquidity into the market through the PSL, significantly boosting the real estate boom.

During this period, the market capitalization of the four major banks showed an overall upward trend, with ICBC's rapidly expanding market capitalization and growth rate far outpacing its peers, becoming the only state-owned bank with a market capitalization exceeding 2 trillion yuan;

Although ABC's market capitalization rose to third place, the gap with ICBC continued to widen. By the end of 2017, ICBC's total market capitalization had reached 2.13 trillion yuan, 1.74 times that of ABC.

From 2018 to 2019, the new asset management regulations brought about a period of pain, and the economic outlook declined under the U.S.-China trade war, leading investors to express concerns about the asset quality and profitability prospects of banks, resulting in fluctuations in the market capitalization of the four major banks.

ICBC, which was far ahead, showed significant fluctuations in market capitalization, while ABC's market capitalization remained stable around 1.2 trillion yuan. By the end of 2019, ICBC's market capitalization was 2.05 trillion yuan, 1.61 times that of ABC.

From 2020 to 2022, the pandemic emerged, and the debt crisis of real estate companies broke out, exacerbating market concerns about the deterioration of asset quality in the banking industry. The valuations of the four major banks fell to historical lows, with ICBC and ABC's market capitalizations shrinking by 27% and 21%, respectively, over three years.

After 2023, the banking industry's valuations began to bottom out and recover, with ABC showing significantly higher growth momentum than its peers, achieving a market capitalization growth of 25% that year, far exceeding that of ICBC, Bank of China, and China Construction Bank in the same year; Subsequently, the market value of Agricultural Bank of China (ABC) continued to grow at an accelerated pace, surpassing the circulating market value of Industrial and Commercial Bank of China (ICBC) A-shares and the total A+H market value on August 6 and September 4, 2025, becoming the largest bank in the world by market value.

As of September 8, 2025, ABC's year-to-date increase has approached 35%.

Referring to the above market value change trajectory, the four major banks have experienced two phases of market value increase in the past decade:

From 2015 to 2017, the monetization of shantytown renovations created an unprecedented demand for personal housing loans, while supply-side reforms improved the profitability of upstream state-owned enterprises such as steel and coal through capacity reduction, effectively alleviating banks' asset quality expectations for public sector stock.

At that time, the banking industry had ample profit margins under the effect of the money multiplier;

Among them, ICBC, with its massive scale, broad customer base, and comprehensive operational advantages, continued the narrative of the strong getting stronger, further consolidating its leading position as the "universal bank."

During the valuation recovery period from 2023 to 2025, the roles reversed.

The rising ABC continued to enhance its market value, jumping from third place among the four major banks to first place;

As of the close on September 8, ABC's A-share PB ratio had reached 0.95 times. Although there is still a gap compared to the highest value of 1.35 times in the past decade, there has been a significant recovery.

After breaking down the fundamentals and various core indicators, the logic behind ABC's valuation rebound is not difficult to understand:

After 2022, the profit growth of the four major banks showed significant fatigue; although ABC's profit growth rate has declined, it has consistently maintained the highest growth rate in the industry and was the only major bank with positive profit growth in the first half of 2025.

From the perspective of balancing "volume, price, and risk," ABC's indicator changes in recent years are also at a relatively favorable level compared to peers:

From 2022 to the first half of 2025, ABC's asset scale grew by nearly 40%, the highest among the four major banks; the net interest margin decreased by 0.58 percentage points, placing it in the middle of the industry; the non-performing loan ratio decreased by 0.09 percentage points, with the best optimization among the four major banks.

Thus, it can be seen that behind ABC's valuation recovery is solid performance support.

Success and Failure are Both Cycles

Why has ABC stood out in the current economic environment?

This is closely related to ABC's strategy, management, and operations, but what is often overlooked is the relationship between the advantageous businesses of major banks and economic cycles.

For example, from 2015 to 2017, the sales area of commercial housing in China increased by 31.8%, and sales revenue grew by 53.1%. Profits of large-scale steel and coal enterprises saw significant increases against the backdrop of capacity elimination;

All of these provided more performance support for ICBC, which focuses on "industry" as its main business, "commerce" as its characteristic, and cities as its main battlefield For example, under the pressure of the interest rate cycle after 2022, Bank of China leveraged its advantages in foreign exchange and overseas business to hedge the interest margin pressure domestically through the asset returns brought by the international interest rate environment, becoming the state-owned bank with the smallest decline in net interest margin.

Agricultural Bank of China has deeply cultivated and adhered to county-level finance for many years, which has become a safety cushion against fluctuations during economic downturns.

In 2024, the revenue proportion of Agricultural Bank's county-level business reached 49.1%, with the growth rate of county-level loans significantly higher than the bank's average level; by the end of that year, the number of county-level outlets reached 23,000, making it the only financial institution with coverage in all established counties.

During a period of shrinking housing prices, asset depreciation, and a significant decline in residents' consumption willingness, the county-level market has shown more significant resilience:

For example, many county residents prioritize safety as their primary demand for deposits, and with limited financial products available locally and a lack of deposit alternatives, they are less sensitive to deposit rate cuts, allowing county banks to obtain low-cost liabilities;

Additionally, the main service targets of county-level financial services are dispersed farmers and small micro-enterprises, with small loan amounts and diversified risks. During economic downturns, customers often have a stronger willingness to repay, ensuring good asset quality;

Moreover, from the perspective of demographic changes, the recent "return home tide" due to the squeezing effect of first-tier cities, along with the penetration of e-commerce and logistics, has further spurred the rise of the county economy.

Today, the market only sees the current performance and market value of Agricultural Bank, but overlooks the underlying logic of county support and the groundwork laid by Agricultural Bank three years ago.

In February 2022, the "No. 1 Central Document" of that year was released, emphasizing financial services for rural revitalization. Subsequently, the central bank and various regulatory agencies issued documents emphasizing increased credit investment in key areas of agriculture and rural development.

In the same month, Agricultural Bank clearly proposed two positions: "leading bank for rural revitalization" and "main bank serving the real economy," emphasizing that "the three rural issues" are Agricultural Bank's unique competitive advantages and business growth points, and that "county-level business is ushering in new opportunities under policy support," accelerating the pace of expanding county-level "capillaries."

Comparing the endowments of Agricultural Bank and Industrial and Commercial Bank of China (ICBC) in their main battlegrounds can provide a clearer understanding of this point.

From 2022 to 2024, the focus areas for credit issuance by the two major banks are similar:

First, the economically developed Yangtze River Delta region, where business depth can be further explored; second, the western region, which has limited coverage and greater space for expansion.

However, the sources of liabilities and profits for the two major banks differ significantly.

Among them, Agricultural Bank focuses on the Yangtze River Delta and western regions, and by 2024, both regions rank among the top in the country in terms of deposit absorption proportion, revenue, and profit contribution rate;

In terms of branch changes, Agricultural Bank had 65% and 56.5% of its newly relocated outlets in county-level areas, urban-rural junctions, and townships in 2022 and 2024, respectively. Although the proportion shows a slight decline, it remains significantly higher than that of other state-owned banks.

ICBC's main battlefield is the Bohai Rim and Yangtze River Delta regions.

Although the western region accounts for a higher proportion of loan disbursement, nearly 30% of ICBC's deposits in 2024 will come from the Bohai Rim region; this area contributes 20% and 24.4% to ICBC's revenue and profit, respectively, making it the core "hinterland" of its operations.

In terms of branch layout, the proportion of new and relocated outlets in county-level towns for ICBC in 2022 and 2024 was 11.7% and 19.73%, respectively, showing an upward trend, but the figures are significantly lower than those of ABC.

The division of the battlefield reflects strategic and resource endowments and determines the differentiation of stories in different cycles.

Future Possibilities

From this perspective, the narrowing of ICBC's market value lead is not due to a lack of excellence in its core business.

In the first half of this year, ICBC performed well in both its main responsibilities and professional characteristics, with loan balances in manufacturing, strategic emerging industries, and green loans exceeding 5 trillion, 4 trillion, and 6 trillion yuan, respectively, all ranking first in the market.

However, as China's population migrates, urbanization slows down, and even shifts towards migration to county areas, ICBC's business structure, which is tied to urbanization processes, corporate investment willingness, and consumer confidence, will inevitably face greater pressure.

On one hand, large urban enterprises and commerce, during an economic downturn, see a decline in investment willingness for expansion, with weakening data such as manufacturing PMI directly affecting corporate credit demand;

The economic transformation pains in traditional advantageous areas like the Bohai Rim further exacerbate short-term performance pressures.

On the other hand, individual customers are becoming more conservative in their attitudes towards consumption and home buying, whether due to a decline in willingness or the pressure of credit contraction and reallocation caused by a wave of early repayments, which may disrupt ICBC's fundamentals and valuation.

It is important to distinguish that cyclical pains do not directly equate to a loss of long-term competitiveness;

The market's attention to the potential change in the title of "banking market value leader" may overshadow ICBC's efforts and accumulated momentum at the bottom of the cycle.

What can be seen is that ICBC still retains a rich foundation:

For example, its main battlefield strength is solid, with a strong customer base, network channels, and brand advantages in core economic belts such as the Yangtze River Delta, Pearl River Delta, and Bohai Rim;

In the first half of the year, loan balances in manufacturing and strategic emerging industries maintained the first position among comparable peers, occupying a leading position in new tracks representing the future direction of urban economic development, such as manufacturing upgrades and financial technology;

The scale of trade financing, the volume of RMB settlement account business, and the balance of personal financial assets are all first in the industry, further highlighting the comprehensive service capabilities of "commercial banking + investment banking" and "domestic + overseas."

Now, the "14th Five-Year Plan" has proposed the development of new productive forces tailored to local conditions at the policy level, with a focus on covering the requirements of industrial clusters in the Beijing-Tianjin-Hebei and Yangtze River Delta regions; the Central Urban Work Conference also proposed the main line of urban development as "improving quality and efficiency of existing stock." If the economy accelerates its bottoming out and returns to a recovery cycle, the core economic zones and urban economies will release vitality. At that time, ICBC, which is more deeply tied to the prosperity of urban economies, may release greater performance and valuation recovery elasticity.

This makes ICBC's 0.72 times PB and high dividend more like a "call option" targeting the development of China's urban economy.

As Goldman Sachs analyzed in a report from 2025, major U.S. banks like JP Morgan and Citigroup did not undertake drastic transformations in response to the economic slowdown, but instead adhered to their core operations and strictly controlled costs.

For example, they strengthened core lending and deposit operations while focusing on light capital intermediary businesses, retained capital to cope with potentially rising credit losses, and reduced costs and increased efficiency through digital transformation measures.

According to Goldman Sachs' analysis, the valuations of these major banks have partially absorbed the market's pessimistic expectations, and once the economic environment improves, their profitability and valuation recovery elasticity will be considerable.

International peers' cases may corroborate that maintaining strength during "counter-cyclical" periods is more important than pursuing high growth.

Just as the groundwork laid during the trough for core operations and cost control has driven Agricultural Bank of China's market value to new highs, similar persistence and adherence also contain the potential for ICBC's future recovery rebound.

Cycles are never static, and the story of the banking market value throne is not a simple win or loss.

Only by riding the wind of the cycle, making good use of endowments, and respecting the rules can one possibly bloom in different economic seasons