Impact of CEPA 6 on HK banks [JPM/GS]

JP Morgan - Impact of CEPA 6 on HK banks

On 9 May 09, The HKSAR Government and the Central People's Government agreed on further services liberalisation and trade cooperation under the Closer Economic Partnership Arrangement (CEPA).

One of the liberalization measures relating to the banking sector is that “branches established by a Hong Kong bank in Guangdong Province can set up ‘cross-location’ sub-branches within Guangdong Province. In other words, Hong Kong commercial banks can establish service points in other administrative areas without first establishing branches there,” according to the press release of the government.

We expect this will allow a faster pace of expansion in Guangdong. This also adds to the attractiveness of the smaller HK banks in view of potential takeovers by foreign banks without a direct presence in China. Currently, all banks under our coverage have established at least one branch in Guangdong Province.


Goldman Sachs - Doubling of addressable market with CEPA 6 for HK banks

CEPA 6: yet another positive for HK, and HK banks in particular The Mainland and HK agreed on May 9 to a sixth CEPA (Closer Economic Partnership Arrangement) package of relatively wide-ranging liberalization measures covering banking and trade in other services, including details.

HK banks already operating within Guangdong Province can now open deposit-taking sub-branches across the entire province Until now, foreign/HK banks wanting to set up sub-branches (for consumer/ commercial deposit-taking/banking) in a key China city must first apply for and set up a “full branch” in that city, a c.2-4 year process.. Under CEPA 6, HK banks with already a full branch in a PRD city (e.g. Shenzhen) can now cross-apply for sub-branches in any of 20 other prefecture-level PRD cities (e.g. Guangzhou, Dongguan), enabling faster/better growth in the PRD.

Doubling the market space? Guangdong's deposits exceed HK's We see this as potentially another landmark event for HK banks, given the close/rising integration between HK and the PRD, and Guangdong Province’s position as the most populous (95.4mn) and one of the most economically significant provinces in China (Rmb3.6trn in 2008; Rmb37,000 per capita), with total deposits of over US$800bn (15% 4-year CAGR) as at YE08, even more than HK with US$777bn.

For well-placed HK banks looking to build/extend their deposit banking franchises across the Pearl River Delta This is a significant break for HK banks operating in China, many of whom see building a deposit franchise as the cornerstone for sustainable, profitable success on the Mainland.