Citi chief shrugs off entry of newcomers in Hong Kong banking sector

The purchase of Chong Hing and Wing Hang by players from overseas will not change landscape of industry in city, says Weber Lo

PUBLISHED : Monday, 20 January, 2014, 12:20am
UPDATED : Monday, 20 January, 2014, 12:20am

Two family-controlled banks in Hong Kong became acquisition targets for outside firms in the past few months, capturing the attention of investors and market players, although it seems to be business as usual at the five banks that dominate the industry in the city.

The Big Five - HSBC, Bank of China, Standard Chartered, Hang Seng Bank and Bank of East Asia - account for almost 60 per cent of the deposits in the city, according to a report from Goldman Sachs.

"I don't think one or two players coming in will change the landscape of the industry in Hong Kong," said Weber Lo, the country officer and chief executive of Citibank in Hong Kong and Macau.

Citi declined to disclose the size of its assets in Hong Kong, although market watchers expect it to be within the top 10.

Guangzhou government-backed Yue Xiu was given approval to acquire Chong Hing Bank, the smallest of the city's remaining family-controlled banks.

An acquiring company with strong finances usually allows the newly bought subsidiary to rapidly increase its market share aggressively, leading to keener competition with its rivals.

Singapore's Oversea-Chinese Banking Corp, the second-largest bank in Southeast Asia, is in talks with Wing Hang Bank for a takeover that will allow it to enter the retail banking industry in Hong Kong.

Lo told the South China Morning Post he was optimistic about Citi's ability to compete in Hong Kong despite the new entrants and tough market conditions.

"I don't think it will be easy for them [to gain a foothold in the city] because it is a very mature market," he said, referring to the new firms entering the market.

Even if the newcomers gained customers, the dominant players were big enough to mount a defence, he said.

Lo started his career as a banker at Citi in 2000. Before that, he had a marketing role at US beverage giant Coca-Cola.

The loan portfolio of Citi rose at a low double-digit pace last year, while deposits posted single-digit percentage growth. It sees lending to multinational firms as a growth driver for its business in the city.

As the US economy recovers, the bank's commercial banking arm, which looks after firms with about HK$400 million in revenue a year, is trying to leverage its strong parent network in the US to attract new clients that have business relationships with Hong Kong firms, said Anson Kwok, the head of commercial bank operations at Citi Hong Kong.

The proposed relaxation of the 20,000 yuan (HK$25,600) conversion limit for Hong Kong residents could also provide a boost for Citi.

Without conversion hurdles, its yuan-denominated wealth management products could really take off, because investors would no longer have to gradually accumulate the yuan before making their investment, Lo said. As a result, more yuan-denominated stocks would be listed in the city.

More initial public offerings are always welcomed by Citi, which fell to No 7 in the league table of global IPO bookrunners last year from No 2 in 2008, according to data from Dealogic.

Concerns in Hong Kong about an outflow of investment money grew after the US Federal Reserve started its tapering programme to reduce its support for the market through its bond purchases.

At the same time, the ultra-loose monetary policy implemented by the Bank of Japan might drive hot investment money elsewhere.

"In 2008 and 2009, Hong Kong seemed like the only destination [for hot money]," Lo said. "But now, you have a lot more like the Shanghai free-trade zone and all the other discussions going on."

But stability, a good legal system and decent returns in Hong Kong still made it a favourite choice of investors, Lo said. "They [foreign investors] are still very positive, not shifting the money somewhere else."

Citi expects growing demand for credit from people wishing to make investments, which could replace the loss of mortgage business, given the subdued tone of property transactions following six rounds of measures taken by the government to curb a potential asset bubble.

"People will take advantage of low [interest] rates to invest," Lo said.