RPT-REUTERS SUMMIT-OCBC eyes expansion in Greater China over another ASEAN market

Tue Mar 25, 2014 1:05am EDT

(Repeats story first published on Monday to add video. For other news from Reuters ASEAN Summit, click on www.reuters.com/summit/ASEAN14)

* Sees China as driving Asian activity; already entrenched in Southeast Asia

* Would raise stake in local China bank if ownership limit were raised

* No comment on Wing Hang Bank buy negotiations

* Drop in new Singapore mortgages to hit earnings in mid-2015

By Saeed Azhar and Rachel Armstrong

SINGAPORE, March 24 (Reuters) - Oversea-Chinese Banking Corp Ltd (OCBC) aims to expand in Greater China which it sees as the engine of Asian economic activity, rather than in another market in Southeast Asia where Singapore's second-biggest lender is already well entrenched.

OCBC, No. 2 to DBS Group Holdings Ltd by assets, is trying to expand outside its core markets of Singapore, Malaysia and Indonesia, which together accounted for 90 percent of the bank's pre-tax earnings last year.

In China, OCBC wants to raise its stake in Bank of Ningbo to the maximum permitted, and in Hong Kong, OCBC is in talks to buy family-owned Wing Hang Bank Ltd for what could be a record amount for the Singaporean player.

"From our perspective, I think we would be more interested to go into the Greater China market rather go into another ASEAN market at the present time," Chief Executive Samuel Tsien said at the Reuters ASEAN Summit on Monday.

ASEAN, or the Association of Southeast Asian Nations, is made up of OCBC's three core markets plus Brunei, Cambodia, Laos, Myanmar, the Philippines, Thailand and Vietnam.

"China's economic activity is really driving the economic activities of Asia right now plus the fact that Chinese companies' desire to move offshore has also created additional opportunities for us," Tsien said at the summit, held at the Reuters office in Singapore.

Greater China - or China, Taiwan and Hong Kong - accounted for 6 percent of OCBC's pre-tax earnings last year, compared with 2 percent four years ago, Tsien said.

OCBC sought to increase that amount in January when it proposed raising its stake in Ningbo in Zhejiang province from 15 percent to 20 percent - the maximum a foreign investor can hold in a bank in China. OCBC is awaiting Chinese regulatory approval.

"In the event that they are willing to relax it (the 20 percent limit) we are quite interested to increase our involvement," Tsien said.

China's banking system, like the country's broader economy, has undergone a series of reforms in recent years as the government increasingly leans toward market forces and away from state control.

Tsien did not say whether he is expecting an increase in the ownership cap soon, but said he does not expect foreigners to be able to own majority stakes in Chinese lenders.

OCBC faces no such restrictions in Hong Kong, where the bank has been in talks to buy Wing Hang for what sources close to the deal estimated at $5.3 billion.

The pair has twice extended the deadline for any agreement, and with the latest deadline of March 31 looming, OCBC on Friday said the two have still not reached a deal. Tsien declined to comment on the deal on Monday.

WEALTH MANAGEMENT

Beyond geography, Tsien said OCBC is interested in expanding its wealth management business, provided any potential deal is not merely incremental given the decent size of its current business.

"At the present time unless there is a market opportunity that is able to bring us to a significantly higher plateau then I think we will rely on what we currently have," Tsien said.

OCBC more than tripled the size of its wealth management business in 2009 when it bought ING Groep NV's Asian private banking business for $1.5 billion, sparking broader industry consolidation.

Last week, rival DBS said it would buy Societe Generale's Asian private banking business for $220 million.

At home in Singapore, government and central bank measures to curb the rise of property prices have slowed growth in mortgages and lending to property companies, which account for about a third of bank loans in Singapore.

The value of new mortgages at OCBC has fallen about 40 percent so far this year compared with the first quarter of 2013, Tsien said. As there are still many customers receiving housing loans previously agreed, the impact will only be felt next year, he said.

"If the market continues to be in a very low activity level the mortgage loan volume will start to show up in our balance sheet probably in the second half of next year," he said.

A rise in interest rates will not have an impact because the bank has already underwritten loans taking into account customers' capacity to absorb higher rates, Tsien said.

Shares of OCBC closed up 1.1 percent in Singapore on Monday compared with a 1.4 percent rise in the benchmark stock index . The shares have fallen 7.8 percent so far this year, more than rivals DBS and United Overseas Bank Ltd.

Follow Reuters Summits on Twitter @Reuters_Summits (Editing by Christopher Cushing)