China’s plans to develop free-trade zones in Shanghai and Guangzhou may be dimming the attraction of banks in Hong Kong for foreign acquirers such as Singapore’s United Overseas Bank Ltd.
The zones may make Hong Kong “less relevant” in coming years, Citigroup Inc. said in a report today, citing comments made yesterday on a conference call by officials at UOB, Southeast Asia’s third-largest largest bank. They were responding to a question about UOB’s interest in bidding for Hong Kong’s Wing Hang Bank Ltd., according to James Antos, an analyst at Mizuho Securities Asia Ltd., who was on the call.
“Management repeated that UOB is not going to overpay for any acquisition and in the case of Wing Hang Bank, the longer-term franchise value might not be what it is right now, considering that China is developing the Shanghai Free Trade Zone,'' Antos wrote in an e-mail today.
Singapore banks are mulling overseas expansion plans to offset the lowest lending margins in Southeast Asia. Oversea-Chinese Banking Corp. is considering a bid for Wing Hang, a family-run Hong Kong lender, people familiar with the matter said on Oct. 24. Samuel Tsien, OCBC’s chief executive officer, declined to comment on the bid at his bank’s third-quarter results briefing on Nov. 1.
Banks in Singapore have an average net interest margin of 1.77 percent, according to data compiled by Bloomberg. While that’s higher than Hong Kong’s 1.73 percent, the Chinese city is seen by lenders as a gateway to the mainland and a way to benefit from increasing global use of the yuan.
“Hong Kong will need to consider the role the Shanghai Free Trade Zone will have in the longer term,” Jimmy Koh, UOB’s managing director of investor relations, wrote in an e-mail to Bloomberg News. “We feel that the Shanghai FTZ is still in its early stages and has a complementary role in developing trade flows between Greater China and the rest of the world.”
UOB’s net income rose to S$730 million ($587 million) in the three months ended Sept. 30 from S$707 million a year earlier, the lender said yesterday. That beat the S$707 million average of nine analysts’ estimates compiled by Bloomberg.
Shares of UOB gained 0.6 percent to S$20.93 at 12:04 p.m. in Singapore trading, compared with a drop of less than 0.1 percent for the benchmark Straits Times Index.