Chong Hing Bank defies mainland bad loan tide as it aggressively expands lending to China
Profit before tax rises 51 per cent to HK$1.2 billion
Profit before tax at Hong Kong-based Chong Hing Bank rose 51 per cent to HK$1.2 billion last year on aggressive balance sheet expansion, a significant increase in cross-border lending, strong fee income from securities trading and an industry-low level of non-performing loans at just 0.04 per cent.
The gains exclude an outsized profit which the bank booked in 2014 from the sale of its Central office tower Chong Hing Centre but include a significant 21 per cent increase in staff costs as the bank expands its way into becoming a champion bank for Guangzhou, under the backing of its new majority shareholder, Guangzhou municipal government investment vehicle Yuexiu Holdings.
Chong Hing said it had two mainland sub-branch openings on the way. The bank expanded the size of its balance sheet by 18 per cent last year to HK$128 billion, and pushed up its mainland China exposure by 37 per cent to HK$25 billion, now a fifth of the bank’s assets.
Chong Hing’s push into the mainland goes against the tide of a wave of Hong Kong-listed banks that are now desperately trying to shrink the sizes of their balance sheets for damage control and licking their wounds from mainland bad debt. At Bank of East Asia’s results last week, BEA managers revealed its non-performing loan level in mainland China had hit 2.63 per cent, which translated into a 106 per cent increase in bad debt charges to HK$2 billion last year.
Margaret Leung, Chong Hing’s deputy chairman and managing director, said: “We don’t come with the baggage of non-performing loans. Unlike banks that have gone into China before us, we have a key shareholder to help us to line up central government state-owned enterprises relationships. Guangzhou underpins our expansion strategy into the Pearl River Delta. We think now is the time to go in and pick clients and what products we want to take on in our expansion.”
To that end, Chong Hing seems to enjoy strong client funding from its nimble network of just 50 branches, which has shielded it against the recent interest rate and foreign exchange shocks in the interbank market. Ninety per cent of its captial comes from sticky client deposits which increased 21 per cent last year – much faster than the 12 per cent increase of new loans Chong Hing extended to the market and giving it manoeuvring space.
The strong funding support helped Chong Hing to deliver a return on equity to shareholders of 10.43 per cent last year, making it a rare Hong Kong-listed banks that is still above water and turning in profits to shareholders above the cost of capital in the latest reporting season.
Management said it would pay a dividend of 37 HK cents.
Steven Chan, regional head of banking and financial research at Maybank Kim Eng, questioned the level of support Yuexiu actually represented in Chong Hing’s China strategy.
“Chong Hing to this day still has not seen success in acquiring a mainland banking licence [as a local incorporated entity],” he said.