As Western banks were pummeled by the financials onslaught, China’s banking sector, along with related exchange traded funds (ETFs), were able to evade the punches and their banks could end up being tomorrow’s champions.

Lenders in China have the potential to expand internationally and become the Citicorps of tomorrow, writes Mark Ralston for the TIME.

Paul Schulte, an analyst with Japan’s Nomura, recently compared the balance sheets of banks in a number of countries and found that U.S. and European banks were highly leveraged, which means greater financial risk. The United States has a leverage ratio of 24.8 and Europe of 40.5. The U.S. leverage ratio in 1993, the year before the start of the asset bubble, was 20.

Meanwhile, Asia’s banks are greatly underleveraged with leverage ratios in China of 15.8, Hong Kong of 14.3, India of 11.6, and South Korea of 16.7. Average levels should be around 20.

But China’s banks have to deal with a small pool of talent, a shortage of managerial expertise and a not-so-easy convertible local currency, which slows the ability to acquire and grow foreign businesses with yuan assets.

For the short-term, Chinese banks will likely focus on Asia and other emerging markets, or places where Chinese businesses are expanding into. Other opportunities will pop up as Western banks start to leave the world banking arena to focus on domestic markets.

Exports in China have dropped significantly and the new Chinese economy is starting to be geared toward the domestic markets with Chinese businesses looking to invest and leverage potential opportunities, remarks Joseph Wang for ADWEEK. The question now is whether China is in the middle of a W-shaped recovery or if it is at the bottom of a V-shaped trend.

• iShares FTSE/Xinhua China 25 Index (FXI): up 34.2% year-to-date; financials are 46.3%

• SPDR S&P China (GXC): up 38.5% year-to-date; financials are 33.7%

Max Chen contributed to this article.

Tags: Asia, China, Emerging Markets, Financial, FXI, Global ETFs, GXC