at Full Speed
Hong Kong and Singapore banks rebound
By ALEJANDRO REYES Hong Kong
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.
Oleniuk for Asiaweek.
Loan growth will likely remain weak this year.
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
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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