Bank of East Asia (BEA) plans to open 10 new branches on the mainland next year and try to diversify its services as much as possible, according to its management.

Hong Kong's largest independent lender is well prepared to take advantage of the full opening-up of the mainland's banking sector and aims to double its profit there in the next few years, said BEA General Manager & Head of its China Division Raymond Yu.

With an eye on the full opening of the mainland's banking sector, BEA began cultivating talents and upgrading its computer system two years ago. "Our mainland team is geared up to handle yuan deposits and mortgage services, and the number of our staff will increase from 1,300 to 2,150 next year," Yu said.

The bank has 31 branches, sub-branches and representative offices on the mainland, with 10 new branches coming up next year, with "most of them in coastal cities (such as Shanghai) and Shenyang," said Yu.

The bank's business on the mainland has been better than other markets, with its profit from loan business alone rising 90 percent to HK$230 million (US$29 million) in the first half.

David Li, chairman & CEO of BEA, one of Hong Kong's largest banks, hopes that the profit from the mainland next year would double to HK$1 billion (US$128 million), or 30 percent of the group's total.

Given the robust growth, Yu expects the cost-to-income ratio of the mainland sector to go down to 36 percent by the end of the year and the bank's loan-to-deposit ratio to meet the stipulated 75 percent criterion in five years.

Mainland and Hong Kong residents comprised 20 percent and 50 percent of the bank's customers respectively. "In the long term, we will diversify the services for our mainland customers, from deposit to credit card service," he said.

BEA was one of the first banks qualified to sell Qualified Domestic Institutional Investor (QDII) products. But Yu said the variety of QDII products was too narrow. "We have discussed with the China Banking Regulatory Commission the possibility of extending the basis to equity and index-pegged investment tools." he said.

Yu said the commission could put the new product on trial, but cautioned that investors might lose interest in the products if the risk of yuan appreciation was ignored.

The first two types of the bank's QDII products have brought in combined revenue of HK$270 million. To withstand the fluctuations of the yuan, BEA has locked up certain margins of its QDII products to prevent the complete erosion of profit in case of currency fluctuations.

BEA was the first Hong Kong bank to cash in on the offers of the Closer Economic Partnership Arrangement (CEPA) and launch yuan-related services in Beijing.

In response to foreign banks' concern over rules that allow each of their branches to take a fixed deposit of at least 1-million-yuan (US$128,000), Yu said the central government's threshold is not aimed at hindering foreign players from accessing local customers.

"The procedure is in line with that of the US," he said. "If foreign banks register in the form of a subsidiary, they can deal with any mainland customer regardless of the amount of their deposit."

On acquisition of local peers, Yu said BEA was looking for the right deals. "We are not in a rush," he said. "The prerequisite for us is whether the acquisition would create a synergy effect for the group."

(China Daily December 14, 2006)