23 July 2019

Banking minnows starting to look like big fish

Talk about a shortcut to a custom banking market. All it needs is a hook-up with a family-owned Hong Kong lender and one is halfway through.

Better still, buying it completes the foray.

That is one big reason foreign banks, including those from the mainland, are trying to get their hands on family-owned Hong Kong banks.

The chief attraction is price. These banks are nowhere near as expensive as their bigger peers such as Hang Seng Bank (00011.HK) and Bank of East Asia (00023.HK).

But the biggest incentive for prospective buyers is the fact that family-owned Hong Kong banks have branches overseas and in the mainland where they are authorized to conduct renminbi business.

For foreign lenders seeking a toehold in the world’s second biggest economy, and mainland banks wishing to expand overseas, these assets make a compelling proposition.

Among them are Chong Hing (01111.HK), Wing Hang (00302.HK) and Dah Sing (02356.HK).

China Merchants Bank (CMB, 03968.HK, 600036.CN) got the ball rolling with its high-profile takeover of Wing Lung Bank in 2008, sparking a wave of mergers and acquisitions. In October, Guangzhou government-backed conglomerate Yuexiu Enterprises snapped up 75 percent of Chong Hing Bank for US$1.5 billion.

Singapore-based Oversea-Chinese Banking Corp. (OCBC) struck an exclusive agreement to acquire Wing Hang Bank. The Hong Kong Economic Journal reported that the proposed deal prices Wing Hang at twice its book value which translates to HK$41 billion (US$5.29 billion) or HK$132.78 a share. Stock exchange filings show the agreement is not binding and the parties are required to get regulatory approval from financial authorities in Hong Kong and Singapore.

That leaves the door open for Agricultural Bank of China (01288.HK, 601288.CN), Anbang Insurance and Scotiabank, Canada’s third largest lender, all of which have been tipped as potential buyers.

Apparently, OCBC will stop at nothing to win Wing Hang, whose main draw is a license to conduct renminbi business in the mainland, one of the first to be awarded to a few shortlisted foreign lenders.

The Singaporeans see Wing Hang as a shortcut through China’s cumbersome approval process. Not a small matter is the fact that Wing Hang operates 14 branches in Guangdong alone.

On the other hand, mainland banks see things in the reverse — a way to expand overseas on the back of the global presence of family-owned Hong Kong lenders.

CMB’s purchase of Wing Lung set a precedent. Wing Lung has achieved a 34 percent average net profit increase in the five years since the takeover, a senior executive told China Business News. Cross-border transactions account for more than 20 percent of Wing Lung’s earnings.

Wing Lung enables CMB to make the most of Hong Kong’s financial infrastructure for its mainland customers seeking everything from stock investment services to global asset allocation.

As for the family-run banks themselves, the deals are timely. Hong Kong’s retail banking market is increasingly being dominated by bigger players, pushing them deeper into the margins.

– Contact the writer at [email protected]



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