Hong Kong yuan business lures non-local banks

Instead of taking OCBC's acquisition approach, Industrial Bank first sets up a branch in the city

PUBLISHED : Monday, 14 April, 2014, 5:07am
UPDATED : Monday, 14 April, 2014, 7:32am

An increasing number of non-local banks are entering the Hong Kong market to grab a slice of the growing yuan-related business.

But while some aggressive players have paid billions of dollars to secure a well-established network in the city, others have preferred to test the water before making such huge investments.

Industrial Bank set up a branch in the city last month, becoming the fourth mainland lender to do so over the past three years, after applying for a Hong Kong banking licence.

Such joint-stock banks are among the second batch of mainland lenders to venture overseas on the back of increasing money flows between the mainland and offshore markets, following the Big Four state-owned banks.

The Big Four lenders expanded overseas after the central government tasked them with learning from international practice and building the infrastructure for the internationalisation of the yuan.

"Mainland banks in the second tier, [apart from the state-owned ones,] have set up offshore operations based on their own commercial decisions," said Raymond Yeung Yue-ting, a senior economist at ANZ Banking in Hong Kong.

He said there was still lots of room for cross-border and yuan-related business, in contrast with Hong Kong's highly saturated retail and loan business.

Joseph Chan, a partner at Sidley Austin in Shanghai, said: "Some banks prefer to dip their toes in the water to understand the market better before buying stakes in Hong Kong banks."

But there were not many purchase options left, he added.

Oversea-Chinese Banking Corp, Southeast Asia's second-largest lender, offered to pay HK$38.4 billion to fully acquire Wing Hang Bank, the eighth-largest lender in Hong Kong, this month after Yue Xiu, the investment vehicle backed by the Guangzhou government, completed the HK$11.6 billion deal in February to buy a 75 per cent stake in Chong Hing Bank, previously the smallest family-controlled bank in the city.

They were following in the footsteps of China Merchants Bank, which paid HK$19.3 billion to buy Wing Lung Bank from the Wu family in 2008.

After the three acquisitions, only two family-controlled lenders, Bank of East Asia and Dah Sing Bank, remain.

Industrial Bank has joined mainland peers China Everbright Bank, China Minsheng Banking and Shanghai Pudong Development Bank in setting up branches in the city after being granted banking licences from the Hong Kong Monetary Authority.

Hong Kong is the first overseas stop for Industrial Bank, the 10th-largest bank on the mainland by core capital. Its Hong Kong branch, with about 40 staff, is focused on international business operations.