Strategic Management
Assignment
Hang Seng Bank Limited
Submitted To: Mr. Sanjeev Sharma
By: Mahbobullah Rahmani (22105)
Hang Seng Bank
Overview of Bank History
Founded in 1933, Hang Seng is one of Hong Kong’s largest listed companies. Our market
capitalization as at 31 December 2020 was HK$247.0bn. With more than 10,000 employees, we
serve over half the adult population of Hong Kong – more than 3 million people – through about
240 service outlets. We also maintain branches in Macau and Singapore and a representative
office in Taipei.
Established in 2007 and headquartered in Shanghai, our wholly owned mainland China
subsidiary Hang Seng Bank (China) Limited operates a network of around 50 outlets in Beijing,
Shanghai, Guangzhou, Shenzhen, Fuzhou, Nanjing, Dongguan, Hangzhou, Ningbo, Tianjin,
Kunming, Xiamen, Chengdu, Foshan, Zhongshan, Huizhou, Zhuhai, Jiangmen and Shantou.
Hang Seng is a principal member of the HSBC Group, one of the world’s largest banking and
financial services organisations
In 1933, business partners Lam Bing Yim, Ho Sin Hang, Sheng Tsun Lin , and Leung Chik Wai
founded Hang Seng Ngan Ho, the predecessor of Hang Seng Bank, in Hong Kong. Hang Seng
means "ever-growing" in Cantonese. It commenced business as a simple money-changing shop
at 70 Wing Lok Street, Sheung Wan, on 3 March 1933. In 1952, Hang Seng Bank became a
private company and embarked on commercial banking. Hang Seng Bank converted into a public
company in 1960. In 1965, Hang Seng Bank suffered a bank run which depleted almost one-
quarter of its reserves. As a result, The Hong Kong and Shanghai Banking Corporation (HSBC)
acquired a controlling 51% interest in Hang Seng Bank, which it later increased to 62.14%. It
established the Hang Seng Index as a public service in 1969 and this stock market index is now
generally known as the primary indicator of the Hong Kong stock market.
In 2002, Hang Seng Bank launched personal e-Banking in Mainland China. Hang Seng Bank
opened its branch in Macau in 2003. In 2006, Hang Seng Bank received authorization to get
ready for the formation of its mainland China subsidiary bank. Within the same year, Hang Seng
Bank introduced a brand revitalization program and presented a new company slogan –
Managing wealth for you, with you.
Hang Seng Bank became the first bank in Hong Kong to fix the renminbi (RMB) prime rate in
2010. In February 2012, Hang Seng Bank introduced the world's first RMB gold exchange-
traded fund (ETF). The brand value of Hang Seng Bank was ranked 65th globally in the 2020
Brand Finance Banking 500, the highest ranking for Hong Kong banks.
The current chairman is Dr. Raymond Ch'ien Kuo Fung. The current Vice-Chairman and chief
executive officer (CEO) is Ms. Louisa Cheang.
What Hang Seng Bank Do
The Bank’s major business activities comprise retail banking and wealth management,
commercial banking, global banking and markets, and private banking. The Bank also offers a
comprehensive range of renminbi services.
Retail Banking and Wealth Management: Retail Banking and Wealth Management activities
offer a broad range of products and services to meet the personal banking, consumer lending and
wealth management needs of individual customers. Personal banking products typically include
current and savings accounts, mortgages and personal loans, credit cards, insurance and wealth
management.
Commercial Banking: Commercial Banking activities offer a comprehensive suite of products
and services to corporate, commercial and SME customers – including corporate lending, trade
and receivable finance, payments and cash management, treasury and foreign exchange, general
insurance, key-person insurance, investment services and corporate wealth management.
Global Banking and Markets: Global Banking and Markets provides tailored financial
solutions to major corporate and institutional clients. Undertaking a long-term relationships
management approach, its services include general banking, corporate lending, interest rates,
foreign exchange, money markets, structured products and derivatives, etc. Global Banking and
Markets also manages the funding and liquidity positions of the Bank and other market risk
positions arising from banking activities.
Impact of subprime financial crisis on Hong Kong bank (Hang Seng bank)
According News and authorities Hong Kong’s economy would be affected by a U.S. economic
slowdown but problems in the U.S. subprime mortgage sector do not pose any systemic risk in
one of the world’s main financial centers.
“According to the information available to us, the subprime problem in the United States has not
caused any systemic implication to Hong Kong’s economic and financial structures,” K.C. Chan,
Secretary for Financial Services, told legislators. “The relevant systems remain structurally
stable.”
According to Hong Kong Commissioner for Economic and Trade Affairs, USA, Donald Tong,
Hong Kong, as a highly externally oriented economy, was not immune to the effects of the
global financial crisis. He reported that the onset of the financial crisis eventually derailed Hong
Kong's economic upswing since mid-2003, causing the economy to contract in the fourth quarter
and slowing economic growth for 2008 as a whole to 2.5 percent. He said the growth rate was
lower than the trend growth rate over the past 10 years and lower than GDP growth of 6.4
percent in 2007.
Mr. Tong reported that Hong Kong's economy performed reasonably well in 2008 with signs of a
significant slowdown in the second half of the year. He said total exports of goods grew by 2
percent and the value of imports of goods increased by 5.5 percent. In addition, he said foreign
direct investment (FDI) continued to blossom with some US$34 billion in FDI coming in the
first half of 2008. "Hong Kong's intake of foreign direct investment underscores Hong Kong's
appeal as a platform for international companies to reach the Mainland of China and Asia Pacific
markets," Mr. Tong said.
The Hong Kong stock market suffered its worst single-day loss on Wednesday since September
2001, plunging more than 5 percent, as fears about a possible U.S. recession and a record loss
announced by U.S. financial giant Citigroup C.N sparked a sell-off in equities across Asia.
Chan said uncertainties caused by a slowing U.S. economy and the subprime mortgage problem
had already weakened Hong Kong’s export growth in recent months and the territory would not
be immune to a global slowdown. Four years into a recovery from the bursting of the dot.com
bubble and the 2003 outbreak of the SARS respiratory disease, Hong Kong’s economy was
strong and benefiting from China’s rapid growth, he said.
Hong Kong’s economy is supported by robust domestic demand as a tight labor market is
pushing up wages and asset prices are rising. Weaker exports, however, mean economic growth
will probably ease to 5.5 percent this year from an estimated average growth of 7.1 percent
annually in the past four years, according to a Reuter’s poll.
Shares in global bank HSBC Holdings 0005.HK, which is also Hong Kong's biggest bank and
one of the earliest firms to reveal exposure to the U.S. subprime mortgage crisis, slid nearly 5
percent in Hong Kong trade on Wednesday after Citigroup announced a US$9.8 billion quarterly
loss on Tuesday.
Hong Kong’s financial system have coped relatively well with shocks due to their minimal
exposure to securitized products, but they are not immune. Stock market declines (56% Hong
Kong, October 2007 to October 2008) were linked declines in major economies’ stocks.
Loss exposures: Financial institutions in Hong Kong had some direct exposures; the Hong
Kong financial system reportedly held about $10 billion of US structured credit products. The
direct exposure to subprime-related assets accounted for 3.7% of total banking assets (CBRC,
2008). Lehman’s collapse also impacted Hong Kong’s financial institutions via loans, credit
derivatives, and bond exposures. Hong Kong banks’ total exposure to US subprime securities
and structured assets remained well below 0.5% of banking system assets (IMF, 2008a).
Loss of confidence: For example, as the subprime crisis became in August 2007, Hong
Kong’s stock markets were still moving up. However, with the increasing number of news
releases about the losses at Hong Kong financial institutions and the pessimistic projections for
the US economy, market sentiment shifted and both stock markets dropped reflecting the echo of
Lehman’s bankruptcy, Merrill’s sale and AIG’s rescue.
Uncertain direction of capital flows: The advanced economies’ credit crunch certainly
drew foreign capital out of Hong Kong to meet investors’ liquidity needs. However, some
foreign investors saw China and Hong Kong as attractive, resilient markets. For example, in the
first two quarters of 2008, China experienced a hot money inflow of about $130 billion, even
larger than that for the whole of 2007 ($124.9 billion), while in the third and fourth quarter it
experienced a hot money outflow of about $7.2 billion and $90 billion. The US Resident’s Net
Foreign Transactions in Foreign Corporate Stocks, a proxy of capital flows to China and Hong
Kong, has also showed more volatility in capital flows to Hong Kong since the beginning of the
subprime crisis. These capital flows clearly could increase stock price volatility in China and
Hong Kong.
Slower export growth: Slowing export demand could hit hurting stock markets via a
dampening of sentiments.
Strategies used to deal with the crisis
Banking sector remained optimistic in Hong Kong's ability to withstand the current financial
crisis having learned hard lessons from the Asian financial crisis over a decade ago.
"Since the Asian financial crisis of 1997-1998, Hong Kong has improved its risk management
and created a more transparent regulatory environment while still encouraging financial
innovation to maintain our competitiveness," Mr. Tong said.
In addition, he remarked that the city's fundamentals include high capital adequacy ratios in the
banking sector, prudent fiscal policies and healthy fiscal reserves.
In response to the 2008 crisis, the Hong Kong government had put in place a full range of
measures to lessen its impact.
A US$12.8 billion loan guarantee program was introduced to help unfreeze credit for the
business community, in particular, for small and medium enterprises.
In addition, to boost public confidence and to help ease the liquidity for the business
community, he said the Hong Kong government had guaranteed all bank deposits – with
no ceiling – and established a mechanism to provide additional capital to banks, if
requested, until at least 2010.
Hong Kong government had fast-tracked public infrastructure projects and introduced
other measures with a view to creating more than 120,000 jobs, training places and
internships in the next three years, including over 60,000 this year.
Noting support from the Mainland government, Mr. Tong said that Hong Kong had
entered into a currency swap pact with the Mainland to provide short-term liquidity to
Mainland operations of Hong Kong banks and the Hong Kong operations of Mainland
banks, if needed.
In addition, Mr. Tong announced that the Mainland government would launch a pilot program
for Hong Kong and five other cities in the Mainland whereby selected companies could settle
cross-boundary trade in Renminbi. The program would enhance Hong Kong companies'
flexibility and reduce the risk of currency fluctuations for companies doing business with the
Mainland. It would also create new opportunities for Hong Kong's banking sector, diversify
local Renminbi assets, and increase the capital liquidity of the yuan in Hong Kong.
"Hong Kong already enjoys clear advantages in these economic areas and we intend to further
explore how best to realize their full potential to ensure Hong Kong's long-term
competitiveness," Mr. Tong said.
Government authorities concluded his remarks by noting that Hong Kong had overcome several
major challenges in the past decade or so, including the Asian financial crisis and the outbreaks
of SARS and avian influenza. "We have confidence in Hong Kong's ability to rebound due to its
sound fundamentals, can-do spirit, quality workforce, the great support from the Mainland, and
the new opportunities arising from the Pearl River Delta development,".
Comparison of banking sectors of India and China
Socialist versus Capitalist Bank Reforms
China is a socialist country. China’s socialist market economic reforms are top down and
strategically planned. China’s one party government has maintained a tight grip on its banking
system, making their banks the largest in the world and capable of channeling sufficient capital
to the economy. Bank reforms in China, however, have fallen behind its economic reforms,
resulting in a large and fast growing shadow banking sector that poses a serious threat to its
financial stability. By comparison, India is the world’s largest democratic country and its
financial reforms were initiated earlier than China’s and are more advanced, providing India’s
banking system with a stronger institutional framework and making them more efficient and less
vulnerable.
India's largest bank, SBI, got a credit rating downgrade this week from Moody's. This comes on
top of worries about the quality of bank assets in India in a slowdown. China's banks are not
having a great time either. Here's a head-to-head comparison of the banking sectors of the
world's fastest growing major economies. India's banks are smaller, more conservative and
potentially in much less trouble than China's.
Size Stack: Chinese banks trump Indian counterparts in number and scale. China had 3,769
banking institutions in 2010, with more than 250 commercial banks, 196,000 business outlets
and 2.991 million employees. India pales in comparison, with 167 commercial banks, 87,768
business offices and 0.8 million employees.
It's the same story in asset size. At least 11 Chinese banks are perched in the top 100 category
based in terms of market size while only three Indian banks make the cut here. To get an idea of
the scale difference, consider this: Industrial and Commercial Bank of China, the largest Chinese
bank, boasts of a market size of $201 billion while its Indian counterpart SBI's market size is
only a fifth at $40 billion.
Not-so Sweeping Coverage: China may have larger and richer banks, but is surprisingly
almost at a par with India in terms of coverage, or rather lack of coverage, of population that uses
formal or semi-formal financial services. A McKinsey study shows that in India and China, the
percentage of adult population that doesn't use formal or semi-formal financial services is 51-
75%.
Power Performance: Banks from both sides have recorded high revenue growth, unlike
counterparts of developed countries. For instance, McKinsey data show revenues of Indian and
Chinese banks grew 19.8% and 13.7% in 2007-10, respectively. The non-performing asset ratio
of the countries' banks too is comparable. NPAs of Indian banks stood at 2.5% in 2010 while
those of the Chinese were 1.7%. Likewise, the cost to income ratio, another measure of banking
efficiency, is only a tad different. Indian banks: 42% and Chinese banks: 39%.
The banking sectors of the two countries are also strikingly similar in the huge public ownership
of assets, unlike in developed nations. The government owns 75% of banking assets in India
while the private sector holds around 18% and the rest foreign ownership. In China, the public
sector owns 51% of assets and the private sector 48%, with negligible foreign ownership.
Measure of Woes: Most experts agree that the woes of China's banking sector are bigger
than India's, thanks to the huge fiscal stimulus package the Chinese government handed to banks
during the 2008 recession to overcome a slowdown in exports. Up to $2.5 trillion of new loans
was disbursed, accounting for 30% of GDP in 2009.
China's banks became a vehicle for the government to provide cheap credit to projects by
government enterprises. To make matters worse, there was growing pressure on banks to achieve
growth targets through lending in housing and infrastructure. The credit was provided at
concessional rates to finance some unviable projects. The upshot was an increase in non-
performing loans (NPL) of Chinese banks. Analysts at Fitch Credit Ratings predict that the ratio
of total credit/GDP in China is likely to reach 185% of GDP by the year end from 124% of GDP
in 2007. Such high credit/GDP ratios have led to banking crises. Japan in the late 1980s is a
notable example.
Cyclical vs Structural: In contrast, Indian banks are far more conservative than their
Chinese counterparts, even more so during global crises. Not surprisingly, the scale of credit
expansion in India was much smaller. Yet the balance sheet of Indian banks' is weaker than in
2008 as “the impaired loan ratio is closer to 6% as against 3.5% in 2008”, according to Morgan
Stanley analysts. The gross NPA ratio of scheduled commercial banks in India increased
marginally to 2.52% in June 2011 from 2.35% in March 2011.
The reasons for this are more cyclical than systemic; Indian banks face pressures from weak
global and domestic macroeconomic conditions. Slowing growth, rising interest rates and weaker
asset quality have cast a shadow on sectors such as real estate, infrastructure and aviation, which
together constitute up to a third of total loans. Anxieties in performance due to infrastructural
lending are a common thread running through Indian and Chinese banks.
References
https://www.reuters.com/article/us-hongkong-economy-idUSHKG3812320080116
https://www.info.gov.hk/gia/general/200904/14/P200904140299.htm
https://voxeu.org/article/assessing-china-and-hong-kong-s-vulnerability-global-financial-
crisis
https://www.hangseng.com/cms/fin/file/result/press_a_2020_en.pdf
https://www.hangseng.com/cms/ccd/csr/2014/eng/value06.html
https://www.hangseng.com/cms/ccd/csr/2013/eng/our-values.html
https://vpr.hkma.gov.hk/statics/assets/doc/100057/ar_20/ar_20_eng.pdf
file:///C:/Users/mahbo/Desktop/2601-8264-1-PB.pdf
https://www.forbes.com/sites/kenrapoza/2015/06/09/the-difference-between-china-and-
india-banks/?sh=74644c5651d8
https://economictimes.indiatimes.com/industry/banking/finance/banking/comparision-of-
banking-sectors-of-india-and-china/articleshow/10281697.cms?from=mdr
