Home » Business » Biz Commentary
Competition and risks rising for Hong Kong banks
By Joyce Huang and Sabine Bauer |
00:00 UTC+8 February 4, 2013
|
Print Edition
Print Edition
HONG Kong's role as a key financial market in Asia and a gateway to the Chinese mainland continues to attract overseas banks, particularly mainland ones.
Mainland-based banks have been expanding their shares through organic growth and mergers and acquisitions. They have significantly increased their presence to about 15 percent of system-wide assets at the end of last June from 9 percent at the end of 2009.
We expect competition in Hong Kong financial market to remain strong as foreign and mainland banks continue investing in the region to tap the Chinese mainland, one of the highest-growth markets.
Small local banks with established branch networks may become acquisition targets as overseas banks seek to boost market presence. Mainland banks can make use of local banks' branches to gain access to offshore dollar funding and increasing yuan deposits to meet financing needs in the mainland.
Banks with established branch networks, including small niche institutions, still have a competitive advantage in gathering deposits over those new market entrants with limited reach. However, the competitive advantage may diminish over time as the latecomers offer higher deposit rates and increase their investments in infrastructure.
Large banks may face associated risks from expansion into higher-risk markets including the mainland, and sustained pressure on profitability. The large base of steady and low-cost retail deposits, strong brand recognition and wide local branch coverage are primary strengths in maintaining their leading positions.
In addition, these banks, as members of multinational banking groups, have competitive advantages in providing cross-border financial solutions and services, benefiting from group resources and world-wide connectivity.
Hong Kong has been establishing itself as a hub for offshore trade and investment in Chinese yuan, and the Hong Kong banking system is highly internationalized, with foreign and mainland banks accounting for about 95 percent of system assets.
Spill-over risk
The overseas-bank dominated system in Hong Kong is subject to spill-over risk if there is stress in other banking systems and economies.
The high system leverage relative to other financial centers such as the United Kingdom and Switzerland adds to our concern, particularly as onshore and offshore lending to Chinese mainland surged in 2009-2010. We expects the Hong Kong Monetary Authority to encourage overseas banks to operate in Hong Kong as subsidiaries instead of as branches to ensure adequate capital and liquidity are in place locally.
In May 2012 the regulator removed the requirement that an overseas bank seeking to establish a locally incorporated banking subsidiary must have been operating through a branch for at least three straight years. It issued one new subsidiary license and four branch licenses in 2012, two to mainland banks.
Most overseas banks conduct retail business through subsidiaries, while branches focus on corporate banking. This could mitigate some contagion risk as the locally incorporated institutions are under more stringent supervisory control regarding matters such as capital requirements, prudential limits and information disclosure. However, a split of bank capital across geographies or jurisdictions makes capital less fungible in times of need.
Joyce Huang and Sabine Bauer are analysts of Fitch Ratings. The opinions are their own.
Mainland-based banks have been expanding their shares through organic growth and mergers and acquisitions. They have significantly increased their presence to about 15 percent of system-wide assets at the end of last June from 9 percent at the end of 2009.
We expect competition in Hong Kong financial market to remain strong as foreign and mainland banks continue investing in the region to tap the Chinese mainland, one of the highest-growth markets.
Small local banks with established branch networks may become acquisition targets as overseas banks seek to boost market presence. Mainland banks can make use of local banks' branches to gain access to offshore dollar funding and increasing yuan deposits to meet financing needs in the mainland.
Banks with established branch networks, including small niche institutions, still have a competitive advantage in gathering deposits over those new market entrants with limited reach. However, the competitive advantage may diminish over time as the latecomers offer higher deposit rates and increase their investments in infrastructure.
Large banks may face associated risks from expansion into higher-risk markets including the mainland, and sustained pressure on profitability. The large base of steady and low-cost retail deposits, strong brand recognition and wide local branch coverage are primary strengths in maintaining their leading positions.
In addition, these banks, as members of multinational banking groups, have competitive advantages in providing cross-border financial solutions and services, benefiting from group resources and world-wide connectivity.
Hong Kong has been establishing itself as a hub for offshore trade and investment in Chinese yuan, and the Hong Kong banking system is highly internationalized, with foreign and mainland banks accounting for about 95 percent of system assets.
Spill-over risk
The overseas-bank dominated system in Hong Kong is subject to spill-over risk if there is stress in other banking systems and economies.
The high system leverage relative to other financial centers such as the United Kingdom and Switzerland adds to our concern, particularly as onshore and offshore lending to Chinese mainland surged in 2009-2010. We expects the Hong Kong Monetary Authority to encourage overseas banks to operate in Hong Kong as subsidiaries instead of as branches to ensure adequate capital and liquidity are in place locally.
In May 2012 the regulator removed the requirement that an overseas bank seeking to establish a locally incorporated banking subsidiary must have been operating through a branch for at least three straight years. It issued one new subsidiary license and four branch licenses in 2012, two to mainland banks.
Most overseas banks conduct retail business through subsidiaries, while branches focus on corporate banking. This could mitigate some contagion risk as the locally incorporated institutions are under more stringent supervisory control regarding matters such as capital requirements, prudential limits and information disclosure. However, a split of bank capital across geographies or jurisdictions makes capital less fungible in times of need.
Joyce Huang and Sabine Bauer are analysts of Fitch Ratings. The opinions are their own.
- About Us
- |
- Terms of Use
- |
-
RSS - |
- Privacy Policy
- |
- Contact Us
- |
- Shanghai Call Center: 962288
- |
- Tip-off hotline: 52920043
- 沪ICP证：沪ICP备05050403号-1
- |
- 互联网新闻信息服务许可证：31120180004
- |
- 网络视听许可证：0909346
- |
- 广播电视节目制作许可证：沪字第354号
- |
- 增值电信业务经营许可证：沪B2-20120012
Copyright © 1999- Shanghai Daily. All rights reserved.Preferably viewed with Internet Explorer 8 or newer browsers.
