Bank of China

Hong Kong lenders are benefiting from mainland’s capital controls, says Bank of China HK chief

PUBLISHED : Thursday, 29 June, 2017, 7:00am
UPDATED : Thursday, 29 June, 2017, 7:00am

The mainland’s ever-stricter policies on capital outflow are boosting lending business in Hong Kong, according to the head of Bank of China Hong Kong (BOCHK).

Yue Yi, the bank’s chief executive, said at the annual general meeting on Wednesday that the lending sector of BOCHK’s business has already increased by about 10 per cent this year.

He put this down to the mainland’s clampdown on capital outflows. As investors struggle to move money out of China, they are turning to banks in Hong Kong for financing.

“The growth in the lending sector is very strong this year. The mainland has been tightening its policies on foreign exchange in order to stabilise the exchange rate and interest rate,” said Yue.

According to Yue, BOCHK handles about 15,000 yuan transactions every day, totalling some 0.8 trillion yuan, and the bank now nets about 10 per cent of its profit from services involving the Chinese currency.

We believe that the shrinkage of offshore yuan’s liquidity pool has bottomed. It is starting to bounce back
Yue Yi, Bank of China Hong Kong

Yue added that as the yuan continues to appreciate, investors are gaining confidence in the currency, which is in turn spurring demand for offshore yuan loans.

“We believe that the shrinkage of offshore yuan’s liquidity pool has bottomed. It is starting to bounce back,” he said.

He said China’s belt and road trade initiative is presenting BOCHK with plenty of opportunity to expand its services related to offshore yuan, especially in southeast Asia.

BOCHK has been acquiring assets in southeast Asian countries from its parent company Bank of China. The acquisitions of businesses in Thailand and Malaysia have already been completed and purchases of assets in Indonesia, Cambodia, the Philippines and Vietnam are also well underway.

Yue said BOCHK is now transforming itself from a local Hong Kong bank into a regional bank, which manages business across southeast Asia and beyond.

BOCHK has already invested about HK$57.8 billion in southeast Asia, he said. While business in those countries contributed less than 10 per cent of total revenue last year, that number is expected to jump to 20 per cent.

Shares of BOCHK soared to an all-time high on Monday, surging 6.2 per cent to HK$36.80. The rally came after Morgan Stanley reiterated its overweight rating for the stock and raised its target price by 21 per cent to HK$46.

Bank of China, the parent company of BOCHK, China’s fourth-largest bank by assets, reported in March that its net profit for 2016 rose 2.58 per cent year on year, reaching 184.1 billion yuan (US$26.7 billion), which exceeded an average estimate of 167 billion yuan by analysts polled by Bloomberg.