Foreign banks have always been on the lookout for retail business opportunities in China. Being a part of the Greater Bay Area, Hong Kong banks, in particular, are expected to benefit from initiatives being rolled out in the region.
The gradual liberalization of financial services in the 11 cities and special administrative regions comprising the GBA will enable Hong Kong banks to offer more services in China, especially in wealth management and lending, according to a new report by Moody's Investors Service.
Although foreign banks have long been operating in China’s retail market, obstacles and restrictions such as difficulties in getting licenses or setting up branches have been their pain points.
With China further opening up and financial technology on the rise, foreign banks are now seeing more opportunities. Wealth management is one of the most promising areas, and is expected to be a major driver for expanding their retail business in the giant market.
The Wealth Management Connect Scheme, for example, will allow residents in the bay area to invest in eligible wealth management products distributed by banks in Hong Kong and Macau. This presents a strong potential for growth for foreign banks, especially if they target the underserved segment of high net worth individuals across the GBA.
Covid-19, to be sure, has weighed heavily on the wealth management industry in the bay area, which dropped 4.54% in the first quarter of 2020, according to the GBA wealth index issued by Bank of China (BOC) earlier this year. However, the impact of the virus outbreak on high net worth individuals has been comparatively small, with the BOC index for this segment declining only by 0.84% during the period. The overall GBA wealth index was expected to rebound in the second quarter, according to BOC.
Moody's believes that Hong Kong banks, in particular, will benefit from the deepening collaboration and connectivity among the GBA cities and regions. "In addition to Hong Kong banks' traditional role in providing loans to mainland companies and loans for use in mainland China, we expect the further development of the GBA will help drive new business growth over the next one to two years," says Moody’s analyst Winnie Tang.
Increased involvement in the bay area suggests that Hong Kong banks will reach a turning point in their China exposures, both in terms of the quality and quantity of their services, according to the rating agency.