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Leading mainland lenders are intensifying their efforts to explore acquisition opportunities in Hong Kong's highly competitive banking sector, in search of a quick way to plug into Asia's financial hub and pave the way for further overseas expansion.

 

China Construction Bank (CCB) has established a special task force led by Vice-President Fan Yifei to study acquisition opportunities in overseas markets, sources told China Daily.

 

CCB, the mainland's third-largest lender, reportedly has an interest in Bank of America's Hong Kong business and Wing Lung Bank, a medium-sized local lender.

 

Meanwhile, the Industrial and Commercial Bank of China (Asia) has its eye on at least another acquisition in Hong Kong in the next couple of years, said Zhu Qi, the lender's chief executive officer.

 

The Hong Kong-listed arm of the ICBC, the mainland's top lender, grew as a result of its takeover of Fortis Bank Asia HK's retail and commercial banking operations in 2004 and Shenzhen-based Chinese Mercantile Bank in 2005.

 

China Minsheng Banking Corp, the mainland's first privately run lender, said in March it was also keen on entering Hong Kong, but it would do so by buying a local player rather than opening branches.

 

And Minsheng's desire to acquire was clearly illustrated by its bid in February for Asia Commercial Bank, the only lender to be put on the market in Hong Kong in the past couple of years.

 

CCB joined Minsheng and 10 other bidders in the battle to take over Asia Commercial Bank.

 

Mainland lenders' enthusiasm to expand in Hong Kong indicates their growing desire to explore international markets, against the backdrop of Chinese firms' growing global role.

 

Mainland companies' overseas investment totaled US$9.18 billion in 2005, up 140 percent year-on-year, making it all the more important for mainland banks to set up shop in global trade and investment hubs.

 

And Hong Kong has a long-standing reputation as a springboard for mainland businesses to use to enter the global stage.

 

"Hong Kong is a window and the only overseas market mainland banks are familiar with," said Andes Cheng, an analyst with China South Research Ltd. "They have to learn how to walk here before they can run in the global market."

 

Hong Kong is also an important testing ground in which they can gain valuable experience of overseas business practices before they head into foreign markets.

 

But acquisitions appear to be the only effective way to expand in Hong Kong, a market dominated by HSBC, Hang Seng Bank and Standard Chartered Bank.

 

More then 150 players from over 30 countries and regions hold banking licences in the special administrative region, while thousands of bank branches operate across the city. "There is just little space for any newcomers," said Cheng. "It's more and more difficult to seek organic expansion in Hong Kong."

 

Mainland lenders, especially latecomers such as CCB, Minsheng bank and China Merchants Bank, will have to swallow existing players in order to gain a foothold in the Hong Kong market.

 

And their chance to buy others seems bigger as tightening margins have forced some local and foreign banks to consider quitting the city.

 

Wing Lung Bank, a medium-sized local lender, said it was "open" to any acquisition offers when it posted a 65.9 percent jump in first-half net profit last Wednesday.

 

Founded in 1933 by the Wu family, which still owns a majority stake in the bank, Wing Lung is said to be a target of CCB, although both sides deny that any talks are taking place.

 

"Trading in Hong Kong will become harder and harder," said Casor Pang, a strategist at Sun Hung Kai Financial.

 

Then it's all about how attractive mainland banks' offers look, analysts said, pointing out the price to buy a local lender could be very expensive if the Asia Commercial Bank deal is a barometer.

 

Public Bank, Malaysia's third-largest lender, bought the Hong Kong banking arm of Asia Financial Holdings Ltd for HK$4.5 billion (US$577 million) in February, representing 2.5 times its book value.

 

(China Daily August 24, 2006)