Date
18 October 2017
Huishang Bank plans to support Vanke by offering loans to the Chinese property developer's suppliers. Photo: Bloomberg
Huishang Bank plans to support Vanke by offering loans to the Chinese property developer's suppliers. Photo: Bloomberg

INTERVIEW: Huishang Bank backs China Vanke supply chain

Huishang Bank Corp. Ltd. (03698.HK) is looking to offer loans to suppliers of China Vanke Co. Ltd. (000002.CN) after the country’s biggest property developer invested HK$3.1 billion (US$509 million) to become a cornerstone investor in the lender’s recent initial public offering (IPO).

The Anhui-based bank will also seek retail opportunities as Vanke starts to develop community-based real estate projects, chairman Li Hongming {李宏鳴} said Monday.

“This not only enhances Vanke’s competitiveness but also broadens our customer base,” he told the Hong Kong Economic Journal’s EJ Insight. 

Vanke’s supply chain includes several thousand small and medium-sized enterprises (SMEs) which account for 54 percent of the bank’s loan book. 

Huishang Bank raised HK$9.2 billion in its Hong Kong IPO by selling 2.61 billion shares at HK$3.53 a piece. The stock will begin trading Tuesday.

Proceeds from the fundraising will boost the bank’s capital adequacy ratio to 16 percent from 13.54 percent at end-2012 and its core capital adequacy ratio to 11-12 percent from 10.3 percent, Li said.

“The cash will be sufficient to meet our needs in the short term,” he said. He declined to comment on any future fundraising plans.

Li expects Huishang Bank to make forays into Yangtze River Delta areas, notably Shanghai, once cross-border restrictions on city commercial bank expansion are lifted.

Tough challenges

Smaller banks in China face tough challenges as regulators push forward financial reform, intensifying competition. This comes as a slowing Chinese economy tempers loan demand.

“Loan growth may ease to 15 percent from [last year's] 19 percent,” Li said.

Also, he expects banks to see tighter net interest margins (NIM) across the board as Beijing continues to free up rates. Huishang Bank plans to maintain profitability by focusing on SME loans and sourcing low-cost funds such as household deposits.

“There are 300,000 micro to medium firms in Anhui and only 7,200 are our customers,” Li said. “The room for expansion is huge.”

In July, the central bank scrapped the minimum lending rate, part of a deregulation that began in the middle of last year. Many banks have started to shift to SME loans that give them a higher margin than those to larger corporates.

Huishang Bank saw its NIM narrow to 2.65 percent in the first half from 3.25 percent a year ago. Its NIM in the first three quarter was 2.58 percent.

– Contact the reporter at yonnexli@hkej.com

RA

EJ Insight reporter

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