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Chong Hing out to play catch up

Lender to leverage backing of new mainland parent for improved results

PUBLISHED : Wednesday, 26 February, 2014, 5:36pm
UPDATED : Thursday, 27 February, 2014, 1:08am

Chong Hing Bank is targeting double-digit growth in net profit and return on equity from an expected boost in cross-border business after the takeover of the bank by a mainland company.

Margaret Leung Ko May-yee, the newly appointed deputy chairman and managing director, said she felt earnings last year were "not enough".

The lender said net profit was HK$557 million, up a modest 2.5 per cent and below listed peers that posted at least 9 per cent growth in their net profits.

"The margin on lending to mainland firms will definitely be higher than to blue chips in Hong Kong," Leung said at a press conference to release the results.

Chong Hing hopes to use its relationship with its parent company, Yue Xiu, the biggest Guangzhou state-owned enterprise in the field, to grab most of the opportunities in the Pearl River Delta region.

Yue Xiu paid the Liu family HK$11.6 billion for a 75 per cent stake in the lender - representing a price-book ratio of 2.08 - in a deal completed this month.

Chong Hing was the second family-owned bank acquired by a mainland company, following China Merchants Bank's HK$4.7 billion purchase of Wing Lung Bank from the Wu family in 2009.

Increased lending to mainland companies is likely to boost higher net interest margins for Chong Hing and increase its revenue.

Net interest margins gained 0.16 percentage point to 1.26 per cent.

Leung said she expected the margins to go up after an increase in lending to mainland firms, which would include both state-owned and private companies. She did not give a figure on how much they would increase.

The margin of Hong Kong banks is about 2 per cent, having been compressed by market-driven competition.

Chinese banks usually have a margin of 2 to 3 per cent because the mainland does not have interest rate liberalisation since the central bank still determines deposit rates.

"We will aim at investing this year to meet our goals [of double-digit growth rates]," Leung said. "We have to work very hard if we want to achieve it by the end of the year."

She said she expected this year's interim and annual results to reflect more positive gains.

Chong Hing's net operating profit before impairment grew 23.6 per cent to HK$660 million, but the increase in impairment charges resulted in slower growth on the bottom line.

Impairment charges stood at HK$35 million, against a gain of HK$65 million in the previous year.

Total loans grew 15.1 per cent to HK$45.1 billion, while total deposits rose 5.4 per cent to HK$71.1 billion.

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