Banking & Finance

Bank of East Asia expects financing boom as mainland factories pull up stakes in search for cheaper locales

PUBLISHED : Monday, 03 September, 2018, 7:33am
UPDATED : Monday, 03 September, 2018, 7:33am

Officials at Bank of East Asia, Hong Kong’s largest family-run lender, expect the ongoing US-China trade stand-off to boost loan growth in the second half of the year, as growing numbers of mainland manufacturers shift production to cheaper Southeast Asian countries.

“The trade war will definitely have a direct and indirect impact on our business, according to deputy chief executive Adrian Li Man-kiu.

“A lot of manufacturing customers have been seeking loans in the past two months to expand their production facilities into Southeast Asian countries such as Vietnam, Malaysia, Thailand or Cambodia.”

He added the move out of China had already been picking up pace, but that the trade issue has accelerated that process, as many companies go in search of cheaper operating costs, especially labour.

US President Donald Trump said in June he planned to start imposing import tariffs on a range of Chinese goods.

Hong Kong’s industrialists are moving out of mainland China to safer havens in Sino-US trade war

As yet there seems no immediate end to the spat between the world’s two largest economies, and

Trump recently reiterated he had set “no time frame” for ending hostilities.

Li expects strong demand for bank financing as the manufacturing exodus continues.

“Loan growth in the second half of the year will be good,” he added.

Bank of East Asia last week reported a 26 per cent rise in first half earnings. Li credited much of that growth to cost cuts and further investment in digital technology.

Adjusted profit for its Hong Kong business rose 41.4 per cent to HK$2.9 billion (US$369.5 million) and it now contributes over 70 per cent of all profit before tax, compared with half five years ago.

Its mainland operations accounted for 9 per cent of pre-tax profit in the period, down from a third five years ago, and the rest, 21 per cent, comes from business interests in the US and Britain, which is similar to five years ago.

In recent years the bank has trimmed its Hong Kong branch network from 92 to 70, shuttering unprofitable outlets, but Li insisted that process is now finished.

Hong Kong draws 29 applications for virtual bank licences

The cash saved from the closures has been redirected into digital offerings, with the lender spending some HK$1 billion developing various mobile and internet banking platforms.

A week ago, Bank of East Asia revealed it had teamed up with Airwallex and Sequoia Capital China to submit a virtual banking license.

“That would help us capture a new segment of customers which would expand our customer base,” Li said.

Another area of focus in the second half will be growing deposits and boosting its mortgage lending business. Li also expects fee income from selling investment and insurance products to increase as a result of the declining value of the yuan.

Li said the declining yuan would attract more mainlanders to come to buy investment and insurance products to “hedge the falling of the currency in the second half”.

Fearing further yuan weakness, mainland Chinese are buying insurance policies in Hong Kong once again