Using outside fund managers to run an investment portfolio, the mid-tier lender has delivered handsome returns An externally managed investment fund portfolio set up by Citic Ka Wah Bank could be expanded to include customer investments, according to Doreen Chan Hui Dor-lam, president and chief executive of the mid-tier lender. Ms Chan attributed a 54 per cent increase in the bank's non-interest income to $355 million in the first half to the strong showing of its wealth management business, as well as a new investment strategy of engaging the services of external fund managers. The bank began putting part of its surplus liquidity into a diversified investment fund portfolio managed by external fund managers it has not identified, about 14 to 15 months ago, with the aim of diversifying investment risk. 'The fund investment has already recorded an investment return of 6 per cent,' she said. 'It generated income of more than $100 million last year and another $90 million for the first half of this year.' Ms Chan added that once the fund had built up a good track record over two years or so, the bank could help retail, corporate and institutional customers and other mainland banks - regulations permitting - to manage their assets under the fund. She said setting up a fund house with a mainland partner to offer such service could be an option, and if so, Citic Industrial Bank, its mainland sister bank, would be the preferred partner. Ms Chan expects continued strong earnings contribution from non-interest business lines, tipping an increase to about $600 million for the full year. From a contribution ratio of 38 per cent in June, non-interest income had grown to a 40 per cent contribution by August. She hoped it could be maintained at this increased level over the next three years. Ms Chan said the bank would like to increase its staff by a further 150 to 160 by end of this year, on top of the 1,333 at the end of last year. Staff numbers now stand at 1,420. The bank had increased staff salaries by an average of 3.6 per cent in July, she said. Citic Ka Wah Bank has mapped out plans to maintain growth. The bank's net profit increased nearly sevenfold to $816 million last year, up from $103 million in 1998, partly boosted by various one-off transactions, including the acquisition of the Hong Kong Chinese Bank in 2002. But Ms Chan said she could no longer rely on one-off gains to maintain strong growth. 'We need a strategic breakthrough,' she said. She would not say whether that breakthrough would come from an equity investment in its mainland sister bank, Citic Industrial Bank, about which there has been widespread speculation in the financial market. Citic Ka Wah Bank is paving the way for further breakthroughs by expanding its existing capabilities. 'We don't want to be just a common Chinese bank, but a Chinese bank with international standards,' Ms Chan said. The bank had a clear niche not only with a strong parent company in the mainland but as one of the few Chinese banks with branches in the US, she added. 'With the mainland market open to the rest of the world, not only can overseas companies enter China, mainland companies can also go out to the rest of the world,' she said. Ms Chan expected there would be a lot of opportunities for the bank to offer help to mainland customers in this 'going out' process.