Reuters logo
Fitch: OCBC's Acquisition May Raise WHB's Competitive Edge
January 9, 2014 / 2:16 AM / in 4 years

Fitch: OCBC's Acquisition May Raise WHB's Competitive Edge

(The following statement was released by the rating agency) HONG KONG/SINGAPORE, January 08 (Fitch) The potential bid for Wing Hang Bank (WHB) by Singapore-based OCBC exemplifies the continuing attraction of small Hong Kong banks as a platform for foreign banks to seize business opportunities in the mainland Chinese market, says Fitch Ratings. If the deal is closed and executed successfully, OCBC (AA-/Stable) could help heighten WHB's (A-/Stable) ability to penetrate the mainland China market better than remaining independent. The likely subsequent rise in China concentration risk could, however, weigh on WHB's intrinsic strength. This potential transaction, the second in recent months involving a Hong Kong-based bank, highlights the dilemma faced by all small Tier 2 banks in this market: a lack of scale and weaker customer base and regional connectivity results in growing margin pressure in an increasingly competitive marketplace. Strategic investment by a larger player would give it improved flexibilities in funding and capital, and potential access to clients - all necessary ingredients for further expansion in a riskier but higher-growth market. Very few acquisition targets will remain for foreign banks looking to gain a foothold in greater China should these deals be completed. With mainland China remaining difficult to access directly, these small banks offer an operating platform, a deposit base and a more stable regulatory environment for foreign banks to build a greater China franchise. OCBC has a limited network in the mainland, but can refer south-east Asian customers seeking business opportunities in China - and benefit WHB's growth in China-related businesses. For WHB, the ability to provide a wider range of cross-border services would enable the bank to improve its competitive position in both Hong Kong and the mainland. OCBC's aspiration to expand in China may accelerate WHB's concentration on the mainland, notwithstanding its presently well-diversified operations with a strong foothold in Macao. WHB's mainland China exposure stood at 27% of assets at end-June 2013 against a system-wide average of 31%. However, we doubt the potential deal would result in aggressive expansion in China. This is because both OCBC and WHB have traditionally relied on strong risk controls to keep asset-quality pressures in check. Moreover, WHB would be subject to the Hong Kong Monetary Authority's supervision - and indirectly to that of the Monetary Authority of Singapore - which should limit excessive risk taking. The proposed takeover is non-binding and remains subject to regulatory approval. It also follows the recent proposed takeover of Chong Hing by the Guangzhou-based Yue Xiu Group. The success of this, and the Yue Xiu bid, would leave a shrinking pool of local family-owned banks. Chikako Horiuchi Director Financial Institutions +852 2263 9924 Fitch Ratings (Hong Kong) Limited 2801, Tower Two, Lippo Centre 89 Queensway, Hong Kong Sabine Bauer Senior Director Financial Institutions +852 2263 9966 Aninda Mitra Senior Director Fitch Wire +65 6796 7232 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. Applicable Criteria and Related Research: 2014 Outlook: Asia-Pacific Banks here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below