NO PLAIN SAILING
Bank’s expansion hamstrung by tighter rules on customer background checks
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