Tuesday 9 December 2008

Singapore Banks Push on with China Long March

If there’s anywhere they want to go, it would be China, says an analyst

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Singapore Banks Push on with China Long March

If there’s anywhere they want to go, it would be China, says an analyst

By LYNETTE KHOO
8 December 2008

(SINGAPORE) With flagging earnings growth and the slowdown in the Chinese economy, you would think that Singapore banks must be having second thoughts about China.

But no, they are still looking to grow their franchise there - the one market that is simply too big to ignore.

‘No economy is completely insulated from the financial crisis that is now sweeping financial markets worldwide. While the market may slow down over the next five years, it will not derail the fundamental direction that China is heading,’ said OCBC Bank (China) Ltd chairman Leong Wai Leng.

‘We aim to set up two new branches a year, subject to regulatory approval,’ she told BT.

OCBC China’s first Beijing main branch is due to start operations by the first quarter next year.

DBS Group, which recently cut 900 jobs or 6 per cent of its workforce mainly in Singapore and Hong Kong, said that this streamlining has no bearing on its plans in China.

‘There is no change in our China strategy,’ a DBS spokesman said. ‘Greater China is an integral part of DBS’ blueprint to becoming a leading regional bank.’

DBS plans to open a branch in Nanning in southern China by the end of this year, pending approval from the China Banking Regulatory Commission (CBRC).

Also in the pipeline are new services such as an ATM card (debit card) in China early next year, phone-banking and Internet banking, the DBS spokesman said.

UOB declined to be specific about its plans in China. Its spokesman said that UOB takes a long-term view and is still growing its franchise there under UOB (China), which currently comprises eight branches including the sub-branch at Jing An.

The huge Chinese market has drawn many foreign banks, which have sought to incorporate their subsidiaries there or snap up stakes in Chinese banks. Only locally incorporated banks can offer a full range of foreign currency and yuan-denominated products to foreigners and Chinese residents and enterprises.

Singapore banks have joined the queue, hoping to gain access to an estimated US$2 trillion worth of household savings there.

UOB acquired a 15.38 per cent stake in Yantai-based Evergrowing Bank in June this year while OCBC has held a 10 per cent stake in Shenzhen-listed Bank of Ningbo since May 2006.

All three Singapore banks received the green light from the Chinese regulators last year to operate in China as locally incorporated entities.

So far, the foray into China has been rewarding. Since the local incorporation of OCBC China in August last year, its revenue and assets have doubled, Ms Leong said. OCBC China now has eight main and sub-branches in Shanghai, Chengdu, Guangzhou, Tianjin and Xiamen.

For DBS, China now represents the third largest market in terms of revenue and this contribution has grown over 50 per cent year-on-year, said the DBS spokesman.

This year, DBS expanded with four new sub-branches and six DBS Treasures priority banking centres in China, and upgraded its Tianjin representative office to a full service branch. This brings DBS’s full branches to six in Beijing, Shanghai, Suzhou, Guangzhou, Shenzhen and Tianjin and its sub-branches in China to five.

In the Greater China region, DBS launched an expanded 40-branch network in Taiwan in September after acquiring failed Bowa Bank’s businesses in February, giving a boost to its expansion from an initial one branch in Taipei. It also maintains a presence in Hong Kong through its own DBS branches and Hong Kong subsidiary Dao Heng Bank, which it acquired in 2001.

The operating climate in China, however, is probably getting tougher, with the world’s fourth largest economy growing at the slowest clip in the third quarter since 2003.

But Singapore banks told BT that they are unfazed by reports of Chinese small to medium-sized enterprises going under as they have been prudent in their corporate lending.

‘We review our customers’ portfolios to ensure asset quality remain healthy and adhere to stringent risk management framework,’ Ms Leong said. OCBC China’s corporate banking targets regional businesses operating in China and Chinese companies that are expanding into Asia.

DBS’s spokesman said that the bank has taken upfront prudent allowances to strengthen its balance sheet.

Analysts reckoned that the prospect of more non-performing loans and slower earnings growth is not unique to China but is happening globally. And given the already saturated home market, Singapore banks will still seek to expand in under-served markets such China.’If there’s anywhere they want to go, it would be China,’ said CIMB-GK research head Kenneth Ng.