Business / Markets

Asia banking on expansion

By ALFRED ROMANN (China Daily) Updated: 2014-05-05 07:41

In terms of geography, banks are looking to reach further afield in their home markets and to tap into regional growth, particularly in China.

A recent acquisition in Hong Kong by Oversea-Chinese Banking Corp, Singapore's second-largest bank, underscores this trend but also highlights the dangers of this expansionary drive.

OCBC, which owns Bank of Singapore, announced plans on April 1 to acquire Hong Kong's Wing Hang Bank for HK $129 ($16.63) per share in cash, considerably more than the HK $84 per share that Wing Hang was fetching last September. The deal is worth HK $38.43 billion.

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"Singaporean banks have been seeking expansion overseas, mostly in Southeast Asia," says Jonathan Koh, a bank analyst at UOB Kay Hian. Koh is positive about the OCBC deal and points out that the bank has been expanding in Hong Kong and the Chinese mainland since 2008.

OCBC's competitor DBS has also sped up its regional push since 2010. In 2011, Singapore's DBS Bank bought Hong Kong's Dao Heng Bank for HK $45 billion, 3.3 times its book value. That acquisition was not exactly a successful one, ending in a S $2.1 billion ($1.67 billion) write-down to DBS due to its deteriorating credit quality.

DBS is OCBC's biggest rival in Singapore and is now the seventh-largest bank in Hong Kong. OCBC has 16 branches in the Chinese mainland, one in Hong Kong and one in Taiwan.

The OCBC deal with Wing Hang, a solid Hong Kong bank with operations in the Chinese mainland, should give OCBC stronger footing there.

"OCBC Bank has been focusing its operations on capturing capital, trade, investment and people flows associated to China through its close relationship with its customers in the region, both onshore and of shore," says OCBC in a statement.

The impact of the deal on OCBC's bottom line will be almost immediate. For starters, it will increase the profits the bank earns in China from 6 to 16 percent. In large part, this is due to Hong Kong's role as the largest of shore yuan market.

But there are dangers, in particular the exposure to new groups of borrowers with uncertain prospects.