UNION Bank of Hong Kong is a small but well managed local bank. Its majority shareholder since 1986 has been the influential and outward-looking China Merchants Group. With 19 branches in Hong Kong - compared to 13 in 1989 - the group has enjoyed superlative growth in assets, deposits and profits over the past six years. Brokerage S.G. Warburg Securities forecasts Union Bank of Hong Kong will have risen by five times between 1987 and 1993. Disclosed net profits (after inner reserve transfers) will have increased from $3 million in 1987 to $115 million in 1993. The major banks have seen assets fall in real terms since the second half of 1992. Union Bank, in contrast, has been able to maintain deposit growth in excess of 20 per cent, ensuring strong loan growth without putting pressure on its loan to deposit ratio, which it is content to maintain at between 60 per cent and 70 per cent. This deposit growth, well above the general market rate, seems set to continue. The bank has gained market share, particularly among clients who wish to bank with a mainland-owned bank but prefer Union Bank's more go-ahead image - rather than that of theBank of China and its sister banks. Although Union Bank's customers may not be Hong Kong's richest individuals, their deposits are likely to be more stable and their ability to exert pricing pressure on deposits less strong. They are also more likely to maintain Hong Kong dollar deposits (over 60 per cent of Union Bank's base), which can be lent out without incurring swap costs. The bank's major area of competitive advantage, however, lies in trade finance, where it can use the contacts of the China Merchant's Group, a large conglomerate with strong interests in trading and shipping. Union Bank of Hong Kong is not planning to disclose profits before inner reserve transfers in the near future. However, disclosure will increase from the announcement of the 1993 final results, with fuller provision of details on loan-books, costs and returns. Union Bank is standing on the lowest 1994 earnings prospective (9.4 times) and the highest prospective 1994 dividend yield (5.71 per cent) of any local bank.