Small is beautiful for bank's HK operation
ARMED WITH ONLY 13 retail branches, Bank of America (Asia) - the local subsidiary of the United States banking giant - competes against goliaths such as HSBC and Hang Seng Bank in a crowded banking sector.
President and chief executive Samuel Tsien is steering the second-tier bank through a period of low commercial credit demand and high personal bankruptcies. Smaller lenders often lose out because they lack the greater economies of scale that enable their larger rivals to cut costs.
The Informer caught up with Mr Tsien to see how the bank is faring and where it is setting its sights for the future.
Q: Is the Bank of America (Asia) a small bank? A: I would say Bank of America is doing local business, but it is important to recognise that because we are part of a global institution, we are able to do things a pure local bank cannot do.
Q: How do you view the sector in Hong Kong? A: We are looking at a market which is structurally changing and you don't find that happening as much in other markets. Hong Kong needs to integrate with the mainland more. That's going to bring us new opportunities, but it's something that needs to happen.
On the immediate side, there is going to be lower demand for traditional products. For example, we have a reduced demand for loans because previously manufacturers needed to borrow here before they could inject money into the mainland.
I think banks should understand that the traditional commodity type of banking business can no longer be counted upon for future growth. They have to look into moving into new areas such as wealth management and expanding into the mainland.
Q: How is the current downturn different from previous ones? A: This is the first time that banks have been faced with a consumer portfolio issue that they are really concerned about. Previously in downturns, people talked about the itics (international trust and investment corporations, which defaulted on massive bank loans in recent years), as it was always the commercial portfolios that caused banks the most headaches.
Q: Have you ever lost sleep because of this? A: I don't have a lot of difficulty sleeping at night. I sleep well.
Q: How so? A: What I've just described is an economic cycle, that happened because there were excesses in the past. We are just correcting that.
Q: Have you had to make any difficult decisions because of this challenging environment? A: We exited from personal loans - that's a relatively big piece of business for any bank.
Q: Why don't you issue credit cards? A: There's a historical reason for that. We used to have credit cards in Hong Kong, but we sold that business in 1988 and, as part of the terms of the sale, we were prohibited from re-entering the market for five years.
We then made two attempts to re-enter the market. At the first attempt, the re-entry cost was pretty high and, as the second attempt was on the verge of the Asian financial crisis, we decided not to do it.
Q: How much does it cost? A: It's estimated that the cost for a newcomer like us is about $700 to $800 for each new customer. Back in 1993, the figure was about $250.
Part of that is to provide gifts to persuade customers to apply for the credit card, and part of that is the advertising costs on the acquired card base.
Q: Do you want to be the size of HSBC in Hong Kong one day? A: Not likely. If we wanted to go a step further and expand into other market segments, I'd have to double our branch network.
