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HSBC

Hang Seng seeks deal for use of Industrial Bank branches

PUBLISHED : Wednesday, 07 March, 2007, 12:00am
UPDATED : Wednesday, 07 March, 2007, 12:00am

Hang Seng Bank is in talks with its associate Industrial Bank on an agreement that will allow its mainland customers to make deposits or withdrawals at the Fujian-based bank's outlets.


The plan could substantially widen Hang Seng Bank's reach in the mainland and help it meet the required loan-to-deposit ratio.


Hang Seng Bank has 16 mainland outlets and plans to open 10 outlets this year. Industrial Bank, which may earn service fees in return, has 26 outlets in Fujian and 388 nationwide.


The initial response from the Industrial Bank to the tie-up proposal is positive, according to Hang Seng vice-chairman and chief executive Raymond Or Ching-fai.


'We will carry out a pilot scheme in Shanghai. I will be disappointed if it can't be done this year,' he said.


The scheme is Hang Seng Bank's latest move to expand in the mainland's recently liberalised market to drive growth.


The Hong Kong lender was among the first batch of foreign lenders that received approval late last year to incorporate in the mainland, enabling it to offer yuan-denominated services.


Hang Seng Bank and other foreign lenders have a five-year grace period to meet a requirement that limits their loans to no more than 75 per cent of their deposits. Hang Seng Bank's ratio is at more than 100 per cent.


'Our growth in deposits will have to double the growth in advances so that we can achieve the stated loan-to-deposit ratio in five years,' said Mr Or.


Industrial Bank's listing in Shanghai last month diluted Hang Seng Bank's stake to 13 per cent from 16 per cent because, as a foreign lender, it was unable to buy the A-share offering.


Hang Seng Bank on Monday reported a better than expected 6.1 per cent increase in full-year net profit to HK$12.04 billion. Its mainland branches saw loan values increase 50.9 per cent and deposits rise 51.1 per cent.


Mainland operations accounted for 6.1 per cent of its pretax profit last year, up from 4.5 per cent a year ago. The lender's target is 10 per cent by 2010.


To fund the expansion, the bank has cut its dividend payout to 82.6 per cent for last year from 87.7 per cent a year ago. Its full-year dividend was HK$5.20, unchanged from a year ago.


Hang Seng Bank also needs to increase its cash levels to fund any future merger and acquisitions on the mainland, according to Mr Or, who said the lender was interested in mainland securities, insurance and asset management firms.


The bank aims to have more than 50 mainland outlets by 2010.