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Bank of China

Increase in predators likely to lift asking prices for lenders

PUBLISHED : Saturday, 01 April, 2006, 12:00am
UPDATED : Saturday, 01 April, 2006, 12:00am

Growing numbers of bidders eyeing merger and acquisition opportunities in Hong Kong's banking market will boost asking prices for local bank assets, according to financial services consultancy KPMG.


Mainland lenders were looking to fill out their footprints in China, including Hong Kong, said Steve Roder, KPMG partner in charge of financial services in China and Hong Kong; while foreign financial institutions aimed to use local banks as a stepping stone to enter the mainland.


'Definitely, this has an implication as to prices - which have already gone up in past transactions,' he said.


The latest acquisition to which Mr Roder referred, was Public Bank's purchase of Asia Commercial Bank, a deal that stunned the market when it emerged that Malaysia's third-largest lender had bought Hong Kong's smallest lender for a price equal to 2.5 times its book value.


This premium was more than double the valuation placed on the previous bank deal, which saw Taiwan's Fubon Financial Holdings buy International Bank of Asia for just 1.15 times book value in September 2003.


Martin Wardle, partner in charge of KPMG's financial risk management practice in China and Hong Kong said that the acquisitions made so far by foreign banks had not yet addressed the problem of there being too many small banks in Hong Kong.


Mr Roder noted: 'Before 1997, domestic consolidation was the driver for merger and acquisition.'


KPMG had for long observed that the city's small banks continued to face a tough operating environment and this remained a driver for further mergers and acquisitions, Mr Roder said.