Chong Hing Bank target of possible takeover

Conservative lender confirms it has been approached in what may be the first buyout of a family-owned bank in Hong Kong since 2008

PUBLISHED : Thursday, 08 August, 2013, 12:00am
UPDATED : Thursday, 08 August, 2013, 4:50am

Chong Hing Bank has confirmed it has been approached about a possible takeover, but said it has not received a firm offer.

The bank and its parent company, Liu Chong Hing Investment, made the announcement in a filing to the stock exchange late yesterday after Chong Hing reported a 6.3 per cent year-on-year rise in first-half net profit of HK$276 million.

A Hong Kong-based bank knows about the banking industry in the city and international standards, and a mainland company is familiar with the onshore market
Chong Hing Bank's chief executive, Felton Lau Wai-man

If an agreement is reached, it would be the first acquisition of a Hong Kong family-owned bank since 2008, when China Merchants Bank bought Wing Lung Bank, and it would leave just three major family-owned banks in the city.

Chong Hing Bank, founded in 1948, has been widely seen as a potential takeover target for both mainland and overseas investors wanting to expand into the city's banking industry. Australian bank ANZ considered buying one of the family-owned banks last year. It gave up on the plan because agreement could not be reached on price.

"Chong Hing is a conservative bank with adequate liquidity, which will attract buyers," said BNP analyst Dominic Chan.

Chong Hing's net interest margin, a measure of the profitability of its interest bearing assets, widened to 1.19 per cent in the first half from 1.06 per cent in the same period last year, helping the lender's net interest income increase by 18.8 per cent.

The bank's statement to the stock exchange said the latest approach may or may not lead to a definitive sale agreement.

The Hong Kong Economic Journal reported the possible sale of the bank to Yue Xiu, which is controlled by the city government of Guangzhou. A possible deal could come with less than two times book value, according to a person familiar with the matter. The shares of Chong Hing and its parent were suspended from trading yesterday morning. Trade will resume today. The bank's shares were quoted at HK$22.45 before the suspension.

"A Hong Kong-based bank knows about the banking industry in the city and international standards, and a mainland company is familiar with the onshore market," Chong Hing Bank's chief executive, Felton Lau Wai-man, said yesterday at a news conference announcing first-half results. "It could light the way for the Hong Kong bank to enter the mainland market."

He said that when a company acquires a bank, it can help stabilise the bank's liquidity requirement. "The bank can help with lending or in the issuing of bonds."

Intense competition in Hong Kong from the large lenders and mainland banks has reduced the growth opportunities for midsized banks. The profitability of banks has been dented by stricter capital requirements.

Analysts said partnering with a mainland entity was likely to improve the growth prospects of Chong Hing. It would help it gain more of a share of cross-border business, they said.

"Cross-border referrals can be the future earning driver for the bank with a mainland partner," said Daiwa analyst Grace Wu.

The sale of Chong Hing Bank shares to people outside the Liu family is limited by a deed the bank's founder instituted in 1972. It says if a Liu family member wants to sell his shares, existing shareholders have the right of first refusal.