BEA reviews future of consumer finance unit

Hong Kong’s largest independent bank has been working to refocus capital on its core banking business as well as improve its capital position.

The Bank of East Asia is conducting a strategic review of its wholly-owned consumer finance unit, Credit Gain Finance, according to a person familiar with the process. 

No decision on the future of Credit Gain has yet been made, according to the person. Another person familiar with the process said BEA is conducting an auction for Credit Gain and had already attracted potential suitors.

BEA has been working to refocus capital on its core banking business as well as improve its capital position.

In March, the Hong Kong bank completed the sale of back office services unit Tricor Holdings to private equity firm Permira for HK$6.47 billion ($835 million). That equated to a steep valuation of about 15 times Tricor’s Ebitda of $55 million in 2015.

The sale of the non-core business enabled the family-run firm to boost its interim dividend payout to HK$0.68 per share, versus HK$0.28 a year ago.

BEA’s Hong Kong-listed shares are up about 20% so far this year.

Activist hedge fund Elliott has a minority stake in the lender and has been pressing BEA to sell itself.

Of course, Credit Gain is a small company in BEA’s portfolio of businesses. It has also struggled recently.

BEA said in its 2016 results that Credit Gain faced stringent regulatory risk and compliance demands during the year.

The imposition of a high degree of regulatory control over credit risk compelled Credit Gain to reduce its risk tolerance in loan underwriting, which led to a decline in loan portfolio growth during the year.

Credit Gain rationalised its branch network in 2016 and its two micro-finance companies in mainland China, Shenzhen Credit Gain Finance and Chongqing Liangjiang New Area Credit Gain Finance, froze expansion plans and focused on improving loan asset quality amidst the challenging environment on the mainland.

As of June 2016, Credit Gain operated 23 service outlets in Hong Kong, Shenzhen, and Chongqing.

To be sure, Credit Gain achieved decent growth in its loan portfolio in 2015. A new outlet was opened in Chongqing in October, 2015, bringing the total number of Credit Gain outlets on the Mainland to seven, with five located in Shenzhen and two in Chongqing that year.

Credit Gain had a 22.5% stake in an auto financing venture in China called Brilliance-BEA Auto Finance Co as of 2015.

Spain's CaixaBank is a substantial shareholder in BEA.

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