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HSBC built financial fortress around HK; it now faces its biggest threat in years

Hong Kong

HSBC Holdings plc spent 150 years building a financial fortress around Hong Kong that touches nearly every aspect of life in the former British colony.

One of the bank's biggest threats? A pack of upstart virtual lenders, which barely existed two months ago, backed by the likes of Standard Chartered plc and Chinese Internet insurer ZhongAn Online P&C Insurance Co.

Few if any of the world's largest financial companies dominate a single market quite like HSBC does in Hong Kong, a city of 7.5 million people that accounted for roughly 60 per cent of the bank's pre-tax income in 2018.

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That makes HSBC a juicy target for the handful of "virtual" lenders vying to shake up the commercial hub's banking market after securing first-of-their kind approvals in March.

HSBC already offers digital services as well as maintains branches in Hong Kong, so clients can use whichever channel they want, a bank spokeswoman said. These include trade transactions through blockchain technology, while HSBC's PayMe mobile wallet has more than 1.5 million users, she added.

The bank's adjusted revenue from Hong Kong rose 14 per cent last year, according to the spokeswoman said, and it hired additional staff in the Hong Kong-China region.

HSBC, which owns about 60 per cent of subsidiary Hang Seng Bank Ltd, has the biggest share across all major banking businesses in Hong Kong, according to an analysis by Goldman Sachs Group Inc. It's also been the city's biggest mortgage lender in the secondary market for the past two years, data from Centaline Mortgage Broker Ltd show.

One of the three note-issuing banks in Hong Kong, HSBC dominates revenue share in the city - more, if one includes Hang Seng Bank. As well as mortgages, commercial banking powers the top line.

Pre-tax profit at the London-based lender as a share of Hong Kong's gross domestic product dwarfs the same ratio at rest of the world's biggest banks, data compiled by Bloomberg show. While Hong Kong is far smaller than China or the US, it's also a regional financial hub, servicing not only China but much of the Asia-Pacific region. HSBC's revenue from Hong Kong accounted for one third of its global total last year.

While small compared to many of the world's major markets, Hong Kong's attractiveness in banking is buoyed by its status as the world's most expensive place to buy property - a position that has contributed to the biggest wealth gap among developed economies.

About 30 per cent of the city's total banking revenue is up for grabs for the new virtual lenders, Goldman Sachs analysts said in September. That translates to roughly US$15 billion, of which US$3 billion could come from HSBC and US$1.7 billion from Hang Seng Bank, they noted. BLOOMBERG