NO PLAIN SAIL­ING

Bank’s ex­pan­sion ham­strung by tighter rules on cus­tomer back­ground checks

New Straits Times - - Business -

DONGGUAN/LON­DON

IN the dig­i­tal age, foot­fall in bricks-and-mor­tar out­lets is an in­com­plete mea­sure of busi­ness ac­tiv­ity, but HSBC’s empty branches in the Pearl River Delta (PRD) sug­gest it’s not all plain sail­ing for the bank’s ex­pan­sion in main­land China.

HSBC, the world’s sixth-largest bank by as­sets, an­nounced in 2015 that it would hire 4,000 new em­ploy­ees and in­vest bil­lions to make the Pearl River Delta (PRD) its gate­way to China, a re­tail and cor­po­rate bank­ing push that bet on a tech boom, in­fra­struc­ture spend­ing and a grow­ing mid­dle class.

It is, as chief ex­ec­u­tive Stu­art Gul­liver re­minded share­hold­ers in Hong Kong re­cently, a key plank of the bank’s global strat­egy to im­prove prof­its by fo­cus­ing on mar­kets with stronger eco­nomic growth. PRD al­ready gen­er­ates more than 10 per cent of China’s gross domestic prod­uct and over a quar­ter of its ex­ports.

On the ground, HSBC still has a moun­tain to climb.

In a run­down mall in Hou­jie, a fac­tory town in the ur­ban sprawl of Dongguan, the HSBC branch stands out with its bright posters and smil­ing re­cep­tion­ist, but only a hand­ful of cus­tomers an hour crossed the thresh­old dur­ing a Reuters visit last week.

At the nearby In­dus­trial and Com­mer­cial Bank of China (ICBC) branch in Changan, dozens rolled up in a sim­i­lar pe­riod. Large lo­cal ri­vals in the PRD, most state-backed, have more than 1,000 branches each to HSBC’s 114 in­clud­ing Guang­dong, and they don’t have the headache of the tough com­pli­ance rules that HSBC has to fol­low to safe­guard its in­ter­na­tional busi­ness.

It’s a headache the bank has to pass on to prospec­tive cus­tomers.

A fac­tory owner who gave his sur­name as Luo said he opened an HSBC ac­count last year to fa­cil­i­tate his busi­ness mak­ing wooden floor­boards and pan­els for clients in Hong Kong, where HSBC was founded in 1865.

Luo rep­re­sents the kind of af­flu­ent Chi­nese cus­tomer with busi­ness in Hong Kong that the bank is keen to snag.

But open­ing a bank ac­count was “quite a lot of trou­ble”, he said, and took nearly two weeks.

HSBC ’s cus­tomer- che ck­ing pro­ce­dures have got tighter in re­cent years af­ter it was hit with bil­lions of dol­lars in fines in the United States for lapses in an­ti­money laun­der­ing con­trols.

A HSBC staff mem­ber at the branch con­firmed that cus­tomer back­ground checks could take longer than at lo­cal banks that had no or neg­li­gi­ble US busi­ness at risk and were not sub­ject to global reg­u­la­tory scru­tiny.

HSBC says it is pleased with its progress in China. At the start of last month, it had 150,000 credit cards in cir­cu­la­tion, hav­ing be­gun to is­sue them in De­cem­ber, mostly af­ter dig­i­tal ap­pli­ca­tions.

It has also launched on­line trad­ing and bank­ing over so­cial me­dia plat­form WeChat.

“We do not in­tend to com­pete on a tra­di­tional ba­sis in PRD. Ab­so­lute branch num­bers and foot­fall will not be our mea­sure,” said Kevin Martin, HSBC’s Asia Pa­cific head of re­tail bank­ing and wealth man­age­ment.

But that’s a game its big ri­vals are also play­ing; ICBC, for ex­am­ple, has of­fered WeChat bank­ing since 2013.

CEO Gul­liver said last year it would take on the 4,000 new re­gional hires over five years, not three, as ini­tially planned.

In­vestors re­main broadly pos­i­tive. “It’s not an overnight thing, and of course ev­ery­one wants it to be faster. The (China) strat­egy should be pur­sued — but it is only one of many strate­gies for HSBC,” said Hugh Young, Sin­ga­pore-based fund man­ager at Aberdeen As­set Man­age­ment, HSBC’s 6th-largest share­holder.

But, some say HSBC re­mains some­thing of an out­sider.

At the Ling Jia Prop­erty Agency, a few me­tres from HSBC’s Hou­jie branch, re­al­tor Yi Lin­feng said most of his cus­tomers use ICBC for mort­gages. None, he says, have ever used HSBC.

“I think they mostly have for­eign cus­tomers from Tai­wan and Hong Kong.” Reuters

HSBC has 114 branches in China’s Pearl River Delta, in­clud­ing Guang­dong, com­pared with 1,000 for its large lo­cal ri­vals. REUTERS PIC

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