HK capital exodus forces banks to initiate ‘Plan B’

Korea’s commercial and staterun lenders are keeping a close eye on a possible mass capital outflow from Hong Kong, as political and trade disputes between the United States and China appear to be worsening.

With China’s top legislature imposing a national security law on Hong Kong, tensions between the world’s top two economies are showing signs of developing into a full-blown financial war. The law took effect Wednesday.

Korean banks operating in Hong Kong are expressing concerns over the conflict.

However, they said they have no choice but to maintain a “wait and see” mode for now, as it is hard to predict how the ongoing situations will deepen down the road. They also said all available options are under review for a worst-case scenario. “Our view is that Hong Kong’s financial status in Asia will not change in the short term, but disputes are expected to weaken the city-state’s medium- to long-term competitiveness,” a spokesman at KB Kookmin Bank said. “Social unrest and unceasing reports over disputes taking place there will be negative economic factors.”

The main fear has already been reflected in the region’s capital market, and Hong Kong’s stock and currency markets are showing no signs of fluctuation now, he said.

Shinhan Bank also said it will keep an eye on the developing situation there.

“We operate one branch in Hong Kong and it mostly handles deals in investment banking,” an official from the lender said. “We do not operate any retail business there, so we believe any capital outflow will have a limited impact on us.”

Capital influx to Singapore unlikely

With fears over possible capital outflow from Hong Kong amplifying, Singapore is seen as an alternative for global financial firms to possibly replace it.

The Korea Development Bank (KDB) operates its Asian head office in Singapore. The state-run lender also runs a branch office in Hong Kong whose total assets amounted to $2.6 billion (3.1 trillion won) at the end of the first quarter.

Despite the growing fears, the lender said it is unlikely for the KDB to withdraw capital from Hong Kong or enhance its business in Singapore.

“Up until now, the Hong Kong crisis has not inflicted any serious damage to Korean banks — including the KDB — so we are not reviewing any scenario regarding the withdrawal of our capital invested, there at the moment,” a spokesman at the state-run lender said.

The Export-Import Bank of Korea (Eximbank) also remained careful over its approach toward the issue, saying it does not have any detailed plans to relocate its Hong Kong office to another region.

“We do not see any disputes, so we have nothing else to do but wait and see,” an official at the lender said, adding the issue was also linked to Korea’s diplomatic relations with China. “Korean firms and financial players may have to take a very careful approach over the issue,” he noted.

Any massive capital outflow from Hong Kong appears highly-unlikely in the foreseeable future because the escalating disputes between the U.S. and China have been mostly plotted by U.S. President Donald Trump, who is seeking to be reelected at a time when his approval ratings are way behind the Democratic presidential nominee Joe Biden, some analysts note.

“Trump’s approval ratings rose in line with the country’s stock market growth in 2019,” Meritz Securities analyst Ha In-hwan said. “But with the outbreak of the COVID-19 putting the brakes on, Trump has started to highlight the tension between Washington and Beijing to recover his approval ratings.”

The economist argued that the U.S.-China dispute and the Hong Kong unrest would not pose a serious threat to local stock markets, as chances are very slim for Washington and Beijing to end up breaking off their trade negotiations amid the global economic downturn.