Singapore banks struggle to gain a bigger portion of Hong Kong’s lucrative banking market
By Research
Smaller banks have lost market position in Hong Kong, while the largest further consolidated their market position across corporate and retail banking between 2007 and 2013.
When Piyush Gupta was made CEO of DBS Singapore in 2010, one of his top priorities was to rebuild the DBS brand in Hong Kong and re-energize its operations. Under his stewardship DBS invigorated its Singapore franchise, consolidated its IT/back office infrastructure, and set out to standardise the regional platform to significantly reduce cost to serve.
DBS Hong Kong grew total group profit between 2007 and 2013 by an anaemic 3% CAGR. Sluggish growth may be an issue of the past though. It delivered strong results in 2013 and we believe by leveraging on its better infrastructure and strong wealth management business which contributes 35% to total fee income and 7% to total group income it has the potential to grow above market going forward.
Profit growth for Singapore banks in 2013 among the lowest of foreign and small banks in Hong Kong
Fig 1. Profit Growth of foreign banks in Hong Kong between 2007 and 2013
Weak growth in the past however resulted in a gradual erosion of DBS’s corporate and general mass retail market position in Hong Kong between 2007 and 2013. It is in the process of exiting the mass market mortgage business to focus on wealth management and the personal loan/credit card segment. Retail loans contributed just 23% to its total loan portfolio as of end 2013, compared with 40% in 2007. Despite its more focused strategy it struggles to break into the high margin personal loan segment where its market share declined from 3.6% in 2007 to 2.7% in 2013.
Largest banks in Hong Kong further consolidated their market position
Fig 2. DBS Bank (Hong Kong) market position in total loans stagnated between 2007 and 2013
Smaller foreign players like Citibank, BEA, DBS and Wing Hang become increasingly insignificant in the retail financial services industry in Hong Kong
Fig 3. Market share in retail loans in 2007 and 2013
Besides DBS, OCBC also became increasingly marginalised in the Hong Kong banking sector both in the corporate and retail banking segment. Despite having a sizeable retail loan size and mortgage business it suffered in the personal loan segment and gained no material retail market share in the last six years. In addition, it was losing out on the lucrative wealth management inflow from mainland China given its small network size in Hong Kong. Domestic and foreign players such as Citibank and Standard Chartered have grown their affluent mainland China customer portfolios between 30-40% annually, a business OCBC could no longer afford to miss out. The acquisition of Wing Hang Bank will give OCBC a much needed anchor point and increase its footprint for its wealth management and corporate business.
DBS has been scaling back their mortgage loan business a key driver in retail loans
Fig 4. With the exception of OCBC and DBS, most 1st tier banks have grown their retail loan business
Heavy regulations and a tight market has made retail banking as a portion of total portfolio less attractive to banks
Fig 5. HSBC HK is the only first tier bank that materially expanded its retail banking portfolio in the last six years
HSBC HK left competition behind in personal loans
Fig 6. Market share changes in personal loans has seen Singapore banks further falling back
Keywords: DBS, HSBC, Citibank, Wing Hang Bank, OCBC, BOC, BEA
Leave your Comments