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Halfway at Full Speed
Hong Kong and Singapore banks rebound

Lucas Oleniuk for Asiaweek.
Loan growth will likely remain weak this year.

The Bank of East Asia, Hong Kong's third largest, got the ball rolling in late July. The first bank in the city to announce its results for the first half of the year, BEA registered a robust 39% rise in net profits to $120.5 million. Days later, Hang Seng Bank chimed in with a 21% year-on-year profit surge to a record $665 million. At the same time, Hang Seng's parent, global giant HSBC, revealed a 28% jump in first half pre-tax profits. The good news was mirrored in Singapore, where the Big Four all boosted profits over the same period, with Oversea-Chinese Banking Corp.'s increasing by 52% and Overseas Union Bank's by 34%. OUB's performance was its best interim result ever.

It is no surprise that Hong Kong and Singapore banks were the first in the region to rebound from the financial crisis that erupted three years ago. Strong first-half results as well for some banks in Malaysia and South Korea are yet further evidence that economic recovery is taking hold across the region. "We're seeing a very marked improvement in Asia," says HSBC chief executive Keith Whitson. The question is how strong the banking sector turnaround will be and whether the revival can be sustained for the rest of 2000.

Many have their doubts. In Hong Kong, "the overall banking industry will remain difficult in the second half," reckons Hang Seng CEO Vincent Cheng Hoi-chuen. He cites the tough competition squeezing margins, even as loan demand stays weak. Operating profits have been iffy. And because banks like HSBC and Hang Seng have released funds previously set aside for bad and doubtful debts, their overall profit pictures look better than they really are. "Net income is growing very high and quickly," concedes Frank Lim, a fund manager at the United Global Capital Fund in Singapore. "But that's because of the impact of [the clawback of previous] loan provisions. Pre-provision profit growth remains very uninspiring." Lim, meanwhile, notes that loan growth, the traditional profit driver in Hong Kong, only ranges between 5% and 7%. "Banks are weighed down by deflationary pressure and the depressed property market." Still, Salomon Smith Barney banking analyst Raymond Lee is overweight on Hong Kong banks. He argues that they have become skilled at keeping earnings up in a tough and competitive lending environment.

In Singapore, the story is a little different. Some banks have actually been beefing up their loan portfolios. Keppel TatLee Bank managed 18% loan growth in the first half of this year, while OUB scored a 10% jump. Peter Seah, OUB's CEO, is bullish about the second half of 2000, predicting profits for the year will "way surpass" 1999's. His reasons? Loan growth in the housing sector, a rise in interest income and — as with most of the bank's counterparts at home and in Hong Kong — a plunge in loan loss provisions.

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