On July 28, Nanyang Commercial Bank (NCB) in Hong Kong unveiled a substantial rate hike of 0.375 basis points, setting its rate at 6.125 percent. This increase notably surpassed the 0.125 basis point hikes initiated by the city’s four major banks, sparking extensive industry attention. Analysis said that the NCB has a close relationship with the beleaguered Evergrande, and NCB’s parent company, China Cinda Group, is a creditor of Evergrande. Coupled with the fact that the NCB has recently adjusted the limit for transfers and remittances to third-party accounts to HK$500,000, it is believed that the NCB is likely to face the pressure of cash shortage, and the interest rate hike is an attempt to avoid the development of the property mortgage business.
Chief Vice President of Meridian Mortgage Referral, Cao Deming, affirmed that this rate adjustment is a decision prompted by mounting internal funding pressures. He suggested that other mid-sized and smaller banks may follow the bank and tailor their rate hikes based on financial conditions.
Strained Liquidity at NCB
On June 27, NCB
announced adjustments to daily transfer and remittance limits for mobile and personal online banking, reducing the maximum daily limit from HK$1 million to HK$500,000, effective July 24. These changes apply to transactions involving third-party accounts, encompassing local bank accounts with different ID numbers from the account holder, accounts at other local banks, FPS (Fast Payment System) identification codes, and overseas bank accounts.
Furthermore, NCB has lowered the threshold for attracting mainland Chinese customers.
Opening an account for mainland customers at the bank has become streamlined, involving about eight minutes of
mobile operations. This reflects the bank’s pursuit of more deposits amid evident financial constraints.
NCB Anticipating Property Market Challenges
According to its 2022 year-end
financial report, NCB witnessed a 41 percent decrease in its cash and bank balances from 2018 to the previous year.
The bank’s primary investments are concentrated in properties, as its
2022 year-end financial report indicates total property investments amounting to HK$2.494 trillion, comprising 82.18 percent of the group’s total assets. On the flip side, the
Centreline City Leading Index (CCL) has indicated a downward trend in Hong Kong’s property market since 2021, which has undoubtedly strained NCB, given that 80 percent of its assets are in properties.
As per its 2022 financial report, the group’s revenue from business investments in Hong Kong declined from HK$103 million in 2020 to HK$65.68 million in 2022, reflecting an almost 40 percent decrease over two years.
Furthermore,
information from the YouTube channel “HK Property x Current Affairs” suggested that NCB holds a pessimistic view of the future property market and anticipates potential turmoil. Therefore, they tried to avoid engaging in the mortgage business. This perspective aligns with the bank’s interest rate increase.
Close Ties with Evergrande’s HK$2.44 Trillion Debt
China’s leading
real estate investment trust (REIT), Evergrande Group, has grappled with a debt crisis for almost two years. The 2022 year-end financial report showed Evergrande’s total liabilities amounting to HK$2.44 trillion, while its total assets stood at only HK$1.9 trillion.
Last month, Evergrande’s subsidiary Evergrande Real Estate Group, Xi'an Co., Ltd, was also taken to court by creditors, seeking its bankruptcy liquidation.
Citing an unnamed senior executive from one of the “Big Four” asset management companies,
Sina Finance noted that the relationship between NCB and Evergrande is highly significant.
Nanyang’s parent company, China Cinda, is a state-owned enterprise (SOE) with multiple financial institutions under its umbrella, including Nanyang Commercial Bank, Cinda Securities, King Harvests Trust, and Xinda Financial Leasing. China Cinda primarily focuses on distressed asset management and financial services, a business in which NCB in Hong Kong also engages through property investments.
NCB, founded by Chuang Shih Ping, is considered an SOE. An
Asia Weekly report in 2007 revealed that Mr. Chuang had been involved with the Chinese Communist Party (CCP) since the age of 16 and was a leader of the “underground party” of the CCP. The bank is a wholly-owned, foreign-funded commercial bank under China Cinda. This political background suggests a closer relationship between NCB in Hong Kong and its SOE parent company, China Cinda.
In January 2022, Liang Senlin, Chairman of China Cinda in Hong Kong, became a non-executive director of Evergrande. A Hong Kong analyst told The Wall Street Journal that this appointment might signal that the Chinese real estate giant was close to receiving investment from China Cinda. He mentioned that this move was reminiscent of China Huarong Asset Management Co. Ltd. (HK: 02799) appointing a former China Cinda executive as a director before the Chinese government bailed it out from its bad loan crisis.
These financial connections may impact the business operations and risk management between NCB, China Cinda, and Evergrande. Still, precise figures regarding non-performing assets and lending amounts must be clarified, creating an unknown variable in the equation.
