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Published on Sunday, 15 Sep 2013
Top local bankers (from left) Wing Hang Bank chairman and chief executive Patrick Fung, Chong Hing Bank honorary chairman Liu Lit-man, Bank of East Asia (BEA) chairman and CEO David Li and his son, BEA deputy chief executive Adrian, and Dah Sing Bank vice-chairman Harold Wong.
Illustration: Martin Megino
Kate Harper
Grace Wu
Paul McSheaffrey

Family-owned banks are ideal for those with HK and mainland links, cultural ties and expertise

When people mention banking in Hong Kong, it tends to be in the same breath as the city’s financial giants. While the big banks are important – as an example, HSBC accounts for over 40 per cent of domestic loans to customers and holds nearly half of local bank deposits – they don’t offer the complete picture.

In the shadow of the giants are a tier of smaller home-grown institutions – many of them family-owned. Although they can be aggressive in some product categories, as a whole they tend to keep a low profile. Many are media-shy when not promoting new products. When they do pop up in the news, it’s often as a subject of market speculation about banking consolidation or managerial succession – a topic they typically remain tight-lipped over.

Perhaps the biggest and most high-profile of the family-run banks in Hong Kong is the Bank of East Asia (BEA), owned by the Li family – one of the four big families in the city. Today, it is headed by the Cambridge-educated banker and public figure David Li Kwok-po, who serves as chairman and chief executive. The bank was founded in 1918 by a group of local businessmen which included Li Koon-chun – grandfather of the present chairman.

Another is Wing Hang Bank – founded in Guangzhou as a money-changing business in 1937 by the late family patriarch YK Fung, and which moved its home to Hong Kong shortly after the Second World War. Today, it is run by YK Fung’s son, Patrick Fung Yuk-bun, as chairman and chief executive.

The last two family-owned banks are Dah Sing Bank and Chong Hing Bank. The former was founded and owned by the tycoon David Wong Shou-yeh, and is run by his son, Harold Wong Tsu-hing, in his capacity as vice-chairman. Finally, Chong Hing Bank – reportedly a takeover target these days – was founded by Liu Po-shan in 1948 after moving from Chiuchow to Hong Kong. Until earlier this year, the bank was run by a member of the founding Liu family, although Liu Lit-Man – Po-shan’s son – is honorary chairman.

Grace Wu, head of Greater China FIG for Daiwa Capital Markets, says that among the four family-run banks, the BEA stands apart as more than 40 per cent of its loans are advanced to mainland customers. Dah Sing Bank and Wing Hang Bank are similar in terms of market share – both are twice as big as Chong Hing in terms of loans to customers. Wing Hang, Dah Sing and Chong Hing all share similar customer sets, with the exception that Dah Sing is more exposed to credit cards and unsecured consumer loans.

On the whole, Wu says that family-ownership hasn’t materially affected how banks are run, noting that members of the current generation of family members who manage the bank are typically experienced bankers. If anything, this is reflected by the fact that some of these smaller Hong Kong lenders have lower risk appetites, which can be reflected in their lower margins. “They are relatively more conservative with their balance sheets,” Wu says.

But there is bad news. Wu says smaller lenders have generally been delivering sub-par return on equity. A big part of it, apart from the competitive landscape, is also due to the general low interest rate environment that has suppressed earnings. “Profit-wise, I think Hong Kong’s banking sector has always been characterised by very intense competition, although in recent years, with the increased presence of some of the mainland-affiliated banks, I think that has exerted more pressure on some of the smaller lenders,” Wu says.

She adds that while cross-border trade settlement and renminbi (RMB) businesses will continue to be key drivers in terms of earnings for the banking sector in Hong Kong, family-owned banks traditionally do not have a strong competitive edge in this field – except for BEA, which has a well-established presence on the mainland. “Over time, I would not be surprised to see the smaller banks’ market share eventually come down,” Wu says.

She adds that banking consolidation – which has reduced the number of family-run banks in Hong Kong from six a decade ago to four today – is expected to continue. “On average, we have seen consolidation every couple of years, that’s been the trend.”

Paul McSheaffrey, partner, financial services, at KPMG China, says: “Given the aspirations of Chinese banks and the emerging regional banks to establish and grow in Hong Kong there will continue to be speculation on local smaller banks being acquired. But the competitive pressures and low interest rate environment are depressing the premium that other banks are willing to pay, and until this matches the expectation of family owners, the speculation is likely to remain just that.”

Phillip Quinn, managing consultant at recruitment firm Kelly Services, says that while smaller lenders don’t tend to hire in the volumes that their larger competitors do – simply because they have smaller scale operations – they still do so fairly constantly. He notes that generally, smaller banks are aggressive in retail and commercial banking and this is reflected in hiring patterns. In corporate banking, demand is highest for roles in settlement, trade finance, and for relationship managers.

In retail banking, the hiring focus is also on relationship managers in addition to financial planning managers as well as roles in bancassurance.

 “As with any bank, there’s always going to be turnover, so they would have to go out into the job market,” Quinn says, adding that while a bank with international presence would look further afield when headhunting senior staff, domestic lenders may be curtailed from doing so because of more limited budget.

Quinn says that because of their size, smaller banks would likely be able to offer competitive salaries compared with their larger rivals, but not higher. Because they tend to focus their operations in Hong Kong, candidates from banks with bigger international presence may find the cultural difference hard to adjust to.

On the plus side, Quinn notes that the reputation among smaller banks of being more risk-averse actually works to their advantage in recruitment, as many candidates may feel it helps to provide better career stability than a risk-taking larger institution.

Kate Harper, director for financial services at recruiter ConnectedGroup, says working in a smaller bank can have benefits.

“With fewer staff, there is normally reduced hierarchy and divisional lines. This is a key motivator for candidates who enjoy a diverse working environment, collaboration, developing new skills and pushing themselves entrepreneurially,” she says.

They also tend to look for candidates who are interested in the wider business and are willing to involve themselves outside the strict remits of their job, rather than hiring solely based on the skill set, Harper adds.

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