BOCHK's mainland plan draws scepticism
Bank harnesses Nanyang Commercial to carry out yuan retail banking business
Bank of China (Hong Kong), whose Nanyang Commercial Bank subsidiary has applied to be incorporated in the mainland, might be adopting a China expansion plan that was less effective than it expected, analysts said.
BOCHK, the local unit of Bank of China, is to use Nanyang Commercial Bank to enter the mainland's yuan retail banking sector, while BOCHK itself will continue to operate as a foreign-funded bank in the country with a focus on corporate banking and foreign exchange business.
He Guangbei, vice-chairman and chief executive of BOCHK, said that a new rule on foreign-funded banks implemented by the China Banking Regulatory Commission offered an opportunity for his bank to integrate and further enhance its mainland business model and strategies.
The rule would also allow the bank to offer more comprehensive services under the group's three brands, Chiyu Banking Corp being the third.
BOCHK has 14 branches and sub-branches in the mainland under its three Hong Kong-incorporated banking units. The lender and Nanyang Commercial have six each while Chiyu Bank has two.
'The scope for business development in the mainland market is therefore greatly expanded, which will naturally translate into higher value for the group's shareholders,' Mr He said.
The approach would help customers to differentiate BOCHK's units more easily from the parent, Bank of China, an analyst at a US bank said. 'But it's hard to imagine how it can compete with its parent and avoid business overlapping,' he said.
Kent Yau Ho-yin, deputy head of Hong Kong research at Core Pacific-Yamaichi, was cautious on whether foreign banks with limited branch networks could succeed after incorporating in the mainland.
The outcome of BOCHK's new approach 'has to depend on how well it executes the policy', Mr Yau said.
The group plans to expand its mainland branch network by focusing first on cities in the Pearl and Yangtze river deltas and elsewhere in the coastal region. It will allocate more resources to this expansion, improve customer services and build its brand.
The bank would keep an open mind on acquisitions if opportunities arose, a spokeswoman said.
BOCHK's new business model had advantages, as foreign banks expanding business through locally incorporated units could be constrained by limited capital, an analyst said.
However, BOCHK could enjoy the benefits of entering the yuan retail market while continuing to expand its corporate banking business under its foreign banking licence due to its large capital base.
BOCHK, Nanyang Commercial and Chiyu have obtained CBRC approval to take deposits from mainland citizens of at least one million yuan for each transaction.