Banking & Finance

Guangzhou government investment arm puts pressure on Chong Hing Bank to expand faster in mainland China

Management at Hong Kong-based lender says expansion outside Guangzhou will be slower

PUBLISHED : Monday, 09 May, 2016, 7:53pm
UPDATED : Monday, 09 May, 2016, 7:53pm

A rift between management and controlling shareholder has spilled into the open at Hong Kong-based lender Chong Hing Bank, with management under pressure from Guangzhou city government investment vehicle Yuexiu to expand faster in mainland China.

Management at the bank, in which Yuexiu bought a majority stake two years ago, has said it needs to slow down its expansion due to a more challenging mainland operating environment.

Analysts have expressed doubt as to whether business referred from Yuexiu would be sufficient to sustain a strategy to take Chong Hing national.

Yuexiu and Chong Hing chairman Zhang Zhaoxing said at the opening ceremony for Chong Hing’s new Guangzhou branch on Monday that the bank was just a year or two away from acquiring local incorporation status on the mainland, and when it did so, there were plans in the works to take the bank national.

The macro environment has become tougher both for Hong Kong and Chinese financial institutions
Margaret Leung, Chong Hing Bank

“With the support of the sister businesses [under the Yuexiu umbrella], the potential of Chong Hing Bank in China is tremendous … Guangzhou as a core city in China’s economy has a strong economic foundation,” Zhang said. “The overall ecosystem is healthy for developments. Under the city government’s support, financial services have enormous opportunity here. Chong Hing Bank will speed up product innovation and bolster its risk management capability and gear up for national expansion.

“Under the mayor’s instruction, he said he doesn’t care about anything else. The bank must set up in Beijing and Shanghai in two years. We will fight for establishing national coverage and position the bank as an internationally competitive Asia-Pacific player. Yuexiu is focused on supporting the growth of Chong Hing Bank with our available resources. We are grateful for the mayor’s support.”

Zhang said the bank had applied to the regulators for permission to open a branch in Shanghai.

However, bank management said a more challenging operating environment on the mainland meant it would scale back its previous, ambitious expansion plan and focus on prospects in Guangzhou, where Yuexiu had more influence.

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“The macro environment has become tougher both for Hong Kong and Chinese financial institutions,” Chong Hing vice-chairwoman Margaret Leung Ko May-yee said before the opening ceremony. “Our expansion outside of Guangzhou will be slower, particularly with places where we have no competitive advantage.

“We have previously over-hired at the planning stage of the branch opening. We’ll now move some of these staff we have hired for the sub-branch to the Guangzhou branch. This will be our new China headquarters, from where we run our national strategy.”

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Leung said the bank was still aiming to open up to three branches and four sub-branches by the end of this year.

A banking analyst who requested anonymity questioned the expansion plan’s sustainability.

“After merging into Yuexiu group, it is natural for Yuexiu and the chairman to push for more mainland businesses,” she said. “The sister companies Yuexiu Property and Yuexiu Infrastructure have nationwide projects, spanning from the coastal region to the central and Yangtze River Delta area. Chong Hing does not have branches outside the Yangtze River Delta currently.

“But on the operational level, I’m not sure if group projects alone would be sufficient to make new branches break even or even be profitable. This might be the key reason holding the management back.”