WING Hang Bank is a rare breed in Hong Kong. It is increasingly difficult to find medium-sized banks in the territory without strong Chinese partners. But if banking means building up long-term relationship with customers, Wing Hang has a group of customers who have been with the bank for two generations. Consequently Wing Hang faces a unique challenge. Its business strategy symbolises the evolution of a traditional family business into a competitive enterprise in the increasingly international environment. Listed in July last year, the bank is 40 per cent-owned by the United States-based Bank of New York. Its long-term prospects in China may not look as promising as its competitors such as Union Bank, Ka Wah Bank and International Bank of Asia, all of which have secured powerful Chinese enterprises as shareholders. But despite this apparent handicap, Wing Hang is finding room for survival and long-term growth. It has the loan profile typical of any Hong Kong bank: a high concentration in residential mortgages, trade finance and thin fee-based income. Wing Hang's management is aware of the trend towards diversification and securing more fee and commission income. Although its mortgage loan activities grew by 23 per cent and its trade financing jumped by 33 per cent last year, Wing Hang has refused to rely too heavily on those kinds of business. Patrick Fung, Wing Hang's chief executive, said the bank hoped to expand its trade finance activities but also develop its credit card business and hire purchase activities. The first Wing Hang visa cards were launched last year. Initially targeted at its own customers, the bank now expects to extend the user-base beyond its existing customer network. Its subsidiary in Macau, Banco Weng Hang, which contributed 17 per cent of total profit last year, will launch a pataca-denominated credit card soon. ''Due to the exchange differences between the Hong Kong dollars and the pataca, it is cheaper for Hong Kong people to use a pataca-denominated credit card in Macau. The potential is there,'' said Mr Fung. In addition, the bank's loan-to-deposit ratio rose from 65 to 69 per cent last year - a more aggressive lending attitude. ''The ratio may be a bit higher than average. It only indicates the bank's strategy to mobilise its funds. More important measurements of the bank's strength are the capital and liquidity ratios,'' said Mr Fung. Though the loan-to-deposit ratio is higher than before, the bank is in a sound financial position. Its capital adequacy ratio rose consistently from 13.4 per cent in 1991 to 17.6 per cent in 1993. A similar trend can be seen in the liquidity ratio which increased from 38 per cent in 1991 to 42.2 per cent last year. The main challenge remains: how to move forward into a less favourable environment in which deposit growth has slowed down and the widening of interest margins seen in the last few years has come to a halt. When the bank's deposits grew by 18 per cent last year, loan growth increased at a much faster rate of 25 per cent. The 18 per cent growth in deposits includes HK$500 million in three-year certificates of deposit (CDs) issued last year. Wing Hang, which has traditionally relied on customer deposits, has resorted to the CD market to secure longer term funding. This points to the difficulty in obtaining deposits in a negative interest environment in which banks have been using higher rates to bid for wholesale deposits. Also high on Wing Hang's agenda is a drive to increase its fee-based income to reduce reliance on interest income. The proportion of fee income slowly increased from 20 per cent to 22 per cent in 1993 and is expected to further increase to 25 per cent. Wing Hang Insurance Brokers will be launching new products to help small and medium-sized companies to set up pension schemes. The bank will also focus on providing trustee services. Those efforts, however, will not bear fruit immediately. Mr Fung said the bank's profit this year might not attain last year's 30 per cent increase, which pushed up profits to $353 million. While it was hardly surprising last year to see a newly listed bank achieve a higher than forecast performance, the main issue this year is whether the same pace of growth is sustainable. With an internal cap on traditionally safe and profitable mortgage lending coupled with a possible squeeze in margins for certain highly competitive businesses, Mr Fung conceded that profit growth for Wing Hang and the sector as a whole might slow down this year. ''The key to this year's business is control of expenses, which have direct impact on the profitability of banks. The efficiency of staff, the rate of salary increases and the speed of automation all count,'' he said. Analysts generally expect only a moderate 15 to 20 per cent growth in the bank's profit this year. Wing Hang's strength lies in a loyal customer base which has dealt with the bank for more than a generation. How to expand beyond that base poses another challenge.