In May, FinanceAsia named the winners of its annual Country Awards for Achievement. In June, we'll present the awards at our annual awards dinner in Hong Kong.
This year, our awards have a new category. Recognising the growing influence of China and its Belt and Road Initiative, we're handing out a Best Belt and Road Bank prize in selected markets. Today, we continue with the winners from Hong Kong.
StanChart Hong Kong is the territory’s fourth-largest bank in terms of total assets and has been operating there since 1859. At a group level, the UK-headquartered bank has been restructuring in the decade since the global financial crisis by focusing on less risky clients and reducing the concentration of its loan book. This root-and-branch reform has taken its toll on profits but has meaningfully strengthened the bank. As a result, the bank looks robust as the credit cycle turns.
StanChart Hong Kong has quality assets, strong liquidity and sound capitalisation. It also has a well-known brand name in the territory with a well-oiled deposit-gathering machine.
The bank deployed the likes of Marvel to attract families with a new ATM card campaign and continued its air miles promotions, an extremely attractive proposition for many of the city’s population. It is also teaming up with fintech companies at the cutting edge of customer experience, including Alipay, to keep its services up to date.
Retail deposits accounted for a very high 79% of overall deposits, according to analysts. Such funding is relatively cheap for the bank to gather and pay interest on to savers.
StanChart’s Greater China and North Asia operations continued to be the bank’s best-performing division in its fiscal first quarter with revenues up 13% year-on-year. This was driven in part by the retail segment in Hong Kong.
StanChart Hong Kong is far smaller than its neighbour HSBC in Central Hong Kong. Its total assets in 2017 are roughly a seventh of HSBC’s, according to S&P Global’s analytics. However, this helps to explain why it palpably suffers from less bureaucracy and fewer unconnected departments, most noticeably in retail where StanChart Hong Kong’s customers’ experience appears more seamless.
StanChart Hong Kong grew its loans by 9% in 2017, below the average of its peer group at around 16%, data from Moody’s shows. Its caution is wise in today’s increasingly risky environment, at a time when foreign banks are more exposed to mainland China than ever before, according to fellow credit rating agency Fitch, driven mainly by Hong Kong banks.
StanChart also benefits from having an exceptionally low and stable bad debt ratio in Hong Kong, with impaired loans accounting for 0.68% of total loans as of end-2017, down from 0.84% as of end-2016, according to Moody’s. Also, its impaired and delinquent loans were slightly lower than HSBC’s in 2017, data from S&P Global show.
Higher interest rates promise to raise StanChart’s relatively low profitability, along with its peer group. That being said, net profit growth in 2017 at 7% was higher than HSBC’s at 5.2%, according to S&P Global’s analytics.
As mainland corporates expand their cross-border trade and investments, StanChart Hong Kong increasingly provides offshore banking services to such customers. This includes Belt and Road projects – from Pakistan to Oman (StanChart said on December 15 it would finance $20 billion-worth of Belt and Road activity by 2020). StanChart has also developed its distributed ledger technology and smart contracts for trade finance to make its service more efficient and reduce the risk of fraud.
In addition, StanChart Hong Kong played a significant part in helping global investors to participate in China’s mainland markets. Particularly noteworthy was its role in helping Bond Connect get off the ground in July 2017.
To be sure, StanChart has a higher cost-to-income ratio at 60.6% than HSBC at 40.35% in Hong Kong, S&P Global’s analytics shows, but that is likely because a greater proportion of the costs associated with its hub function for the region have been allocated to Hong Kong. The bank’s staff in Hong Kong serve mainland China, multinational clients with a presence in Asia Pacific, as well as regional clients.
Its core tier 1 ratio is 15%, in line with rival HSBC’s at 16.97%, and shows it is well buffered against potential shocks, according to S&P Global’s analytics. With property prices climbing to vertiginous heights in Hong Kong, that is certainly a plus.
BEST BELT AND ROAD BANK: HSBC
Founded in Hong Kong in 1865, HSBC’s history is inextricably entwined with the SAR. Given the strength of the bank’s conviction about the viability of the China’s Belt and Road Initiative, Hong Kong will continue to play a pivotal role in its fortunes for some time to come.
HSBC views Hong Kong as a “super connector” for the development of China’s ambitious infrastructure initiative. Blessed with the rule of law, jam-packed with international financial institutions, consultants and corporate service providers, HSBC’s strategy is to make its Hong Kong operations the intellectual nerve centre for Belt and Road business.
Cementing that vision, HSBC appointed senior banker Mukhtar Hussain to the new role of head of Belt and Road Initiative, which moved him from Malaysia to Hong Kong this summer. Hussain’s primary duty will be to coordinate all relevant HSBC teams across the globe to ensure that clients looking to grow along the Belt and Road are being financed or given advice.
Don’t expect to see HSBC topping the Belt and Road balance sheet charts – the Chinese state-owned institutions will own that pleasure. Instead HSBC, with its presence in 44 Belt and Road countries, will use its extensive network to deliver bespoke services across capital markets, trade finance, cash management and risk management.
It claims to be involved in approximately 100 Belt and Road-related deals already. An example is in Hong Kong, where HSBC is the sole financial advisor for the Hong Kong Airport Authority’s development of a third runway. The increased capacity is expected to cater for an additional 30 million passengers a year, of which HSBC believes many will be Chinese business executives travelling to Belt and Road countries.
Construction of that third runway is expected to be completed in 2024 at a cost of around $18 billion. HSBC is charged with advising the authority on the best methods to fund the eight-year project.
BEST INVESTMENT BANK, BEST DCM HOUSE, BEST ECM HOUSE, BEST BROKER, BEST PRIVATE BANK – HSBC
HSBC dominated across the board in 2017.
It completed over $30 billion of mergers and acquisitions in 2017/18, data from Dealogic shows. It was the sole financial advisor for Sun Art on Alibaba’s $2.9bn acquisition of a 36.2% effective economic interest in Sun Art and the subsequent mandatory general offer. It also acted as lead sponsor on the $19.4 billion de-merger of Wharf Real Estate Investment Company via a spin-off listing.
In debt capital markets HSBC again led the field for 3G mandates —dollar, euro or Japanese yen denominated bonds — from Hong Kong and China. It also maintained its leading role in Hong Kong dollar bonds and for offshore renminbi-denominated bonds for Greater China issuers.
HSBC advised on CAPCO’s $500 million debut 10-year US dollar energy transition bond offering, the proceeds of which will be used to finance a highly efficient 550MW CCGT at Black Point Power Station in Hong Kong. It also advised on first green deal to be priced globally in 2018 – Swire Pacific’s 10-year $500 million green bond, the first to gain certification from the Hong Kong Quality Assurance Agency.
HSBC also raised $4.5 billion for its clients during the review period in equity capital markets. It acted as joint sponsor, global coordinator and bookrunner on Agile’s $524 million initial public offering and as joint bookrunner on the $1.2 billion IPO of China Literature, and was sole bookrunner too on CSPC Pharmaceutical Group’s $301 million primary share placement.
HSBC Private Banking continued to serve high-net-worth individuals and their families grow their wealth in Asia. 2017 saw the complete rollout of the Client Lifestyle Management team, to streamline and improve efficiency across the board.
The bank’s brokerage services went from strength to strength as well. In December 2017 HSBC launched its majority-owned securities joint venture in mainland China, HSBC Qianhai Securities Limited. It also introduced its proprietary stock trading app, Easy Invest, during the qualification period.
BEST INTERNATIONAL BANK: OCBC WING HANG
OCBC Wing Hang's solid financials and growth strategy impressed us.
According to S&P Global’s analytics, OCBC Wing Hang’s 2017 Tier 1 ratio of 14.18 is roughly in line with its peer group. Its full-year net profit after tax was 18% higher at HK$2.41 billion ($307 million), driven by increases in both net interest and non-interest income.
Customer loans rose by 11% to HK$180 billion and the bank’s non-performing loan ratio improved to 0.5% from 0.9% a year ago, while deposits increased by 15% to HK$222 billion.
During the award period OCBC acquired National Australia Bank’s private wealth business in Singapore and Hong Kong. As at end February 2017, the business comprised a mortgage portfolio amounting to about $1.7 billion-worth of mainly residential mortgage loans and a deposit portfolio made up of about $3.05 billion-worth of deposits in a mix of currencies. OCBC Wing Hang will absorb more than 50% of the mortgage loan business and gain an additional 4,000 customers in an affluent sector.
According to a Fitch Ratings report, OCBC Wing Hang is also in a strong position to gain increased access to large customers and lower its cost of funding by further integrating with OCBC’s Greater China business, such as the sharing of treasury and risk-management practices, and leveraging its parent bank’s regional franchise.
BEST INTERNATIONAL INVESTMENT BANK: GOLDMAN SACHS
Goldman Sachs demonstrated its prowess across equities, debt, M&A and financial advisory services throughout the review period.
The bank acted as sole global coordinator and bookrunner in Country Garden Holding’s $3 billion dual-tranche offering. This was the largest-ever equity and equity-linked dual tranche offering in Asia, combining a $1 billion top-up equity placement with a $2 billion convertible bond.
Goldman Sachs also acted as sole sponsor, global coordinator, sole bookrunner, joint lead manager and sole stabilisation agent as AK Medical Holding came to market in December with a $56 million initial public offering. It was the largest Hong Kong IPO by a Chinese medical device company since 2013.
In M&A, Goldman Sachs was sole sell-side advisor on the $6.5 billion sale of Ista International to Cheung Kong Property, which was the largest ever sale by a German company.
In July the bank acted as sell-side advisor to Reliance Home Comfort in its $3.4 billion sale to Cheung Kong Property, the largest outbound construction M&A in 2017, facilitating a landmark cross border transaction.
In debt capital markets, Goldman played a key role on several of the review period’s largest offerings. Goldman advised on Postal Savings Bank of China’s $7.25 Billion Perpetual Offshore Preference Shares priced on September 21.
It also acted as joint bookrunner on Tencent Holding’s $5 billion multi-tranche floating-rate note sale, which achieved the tightest spreads across the three tenors in the company’s history.