The Bank of China (BOC) is about to become one of the most powerful financial institutions in the Special Administrative Region (SAR) with last month's announcement that the group plans to restructure its local operations. The BOC has already made its presence felt in the SAR but it is expected that it will become the region's second largest bank with total assets worth $873.8 bn next to the Hong Kong & Shanghai Banking Corporation (HSBC) which has combined assets of $1.66 trillion.
The restructuring plans involve incorporation of its associate banks into a single organisation except for two (Chiyu Banking Corporation and Nanyang Commercial Bank) which will retain their licences to operate as subsidiaries. Steven Thompson, senior executive at the Bank of Asia said in the Hong Kong press: 'It will take time for BOC group to merge its Hong Kong sister banks into one single entity. Even though they are under one umbrella, I think they may maintain a degree of independence, somewhat like the Bank Consortium.' The Bank Consortium, created in mid-1999, was formed by 10 small-sized member banks with the aim of closing the gap between them and the larger banks.
An analyst quoted by the Hong Kong iMail news service states: 'It is expected BOC will have to streamline its branch network and reallocate resources to develop more value-added services, but they should handle this in a cautious manner, avoiding a massive redundancy of staff.'
Currently the SAR banking sector is dominated by the HSBC group, Standard Chartered Bank and the BOC group collectively representing about 75 per cent of the market. The general feeling among the press in Hong Kong is that the BOC intends to build on its current status and wants a larger piece of the market which could prove controversial for smaller banks: 'Changes in market forces, like the emergence of the newly merged BOC, will impose competitive pressures on small banks,' said Arthur Lau, Fitch IBCA deputy head for financial institutions in Greater China.
However, BOC chairman Liu Mingkang argued that the current average ratio of high yield loans compared to total loans of the BOC's sister banks is 1:20 which is well below that of the smaller banks. Therefore he says the BOC has plenty of room to market itself aggressively.
And not all small banks view the BOC as a threat, at least not in the short-term, according to Nam Lee-yick, executive director of Liu Chong Hing Bank, 'the integration of member banks of BOC is just a recognition of fact. I don't think this will affect the market share and business environment of small local banks in Hong Kong.'
This view is shared by Patrick Ho associate director of Vickers Ballas Securities who sees the BOC's future taking a different path to the smaller banks: 'I think the new BOC will move towards sophisticated banking services, such as wealth management, rather than just concentrating on retail banking products. Besides, their pricing strategy may become more conservative when they go public.'
The BOC group is aiming for dual listing to take place in Hong Kong and the US in due course and expects to raise around US$4 or US$5 billion (HK$39 billion).
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