Seng Heng Bank : History and Acquisition by Industrial and Commercial Bank of China

This book examines the success story of Seng Heng Bank (SHB), the successful acquisition of SHB by Industrial and Commercial Bank of China (ICBC), and the continuing sound management and performance of ICBC (Macau). It shows how a loss-making small bank grew into one of the best banks in Macao and highlights the achievement, awards, and recognition of SHB. The authors detail the SHB acquisition process by ICBC, the biggest bank in the world in terms of total assets. They identify the main contributing factors for the success of SHB and draw conclusions and implications for bank managers in the region and beyond. This book will be of interest to finance professionals and business scholars. Foreword 5 Foreword 7 Acknowledgements 11 Contents 12 List of Figures 14 List of Tables 16 Chapter 1: Introduction 18 1.1 History of Macao 18 1.2 About Seng Heng Bank and ICBC 19 Seng Heng Bank: A Macao Success Story 19 ICBC: Largest Commercial Bank in the World 19 ICBC Acquiring Seng Heng Bank 19 Generous Offer to Buy Seng Heng Bank Accepted 19 Post-Acquisition Successes 20 1.3 Why Banking Industry Is of Interest in a Gaming and Tourism Dominated Society of Macao 20 Strength and Resilience 20 Closely Intertwined 21 Role of Banks in the Smooth Running and Development of an Economy 21 Role of Banks as Intermediaries 21 Payment and Clearing Services, Foreign Exchange and Liquidity 22 Credit Monitoring 22 Problems in the Financial Systems Can Spill Over into the Real Economy 23 Role in “One Centre, One Platform” in Macao 23 1.4 About This Book 24 References 25 Chapter 2: Macao’s Economy and Banking Industry 26 2.1 Macao’s Economy 26 2.2 The Gaming and Tourism Industry 28 Origins and Liberalisation 28 Macao’s over-Reliance on Gaming 28 Diversification and Development of Financial Services 29 2.3 Macao’s Financial Sector and Banking Industry 30 Emergence of Banking Industry in 1970s 30 Most “Local” Banks Are Subsidiaries of Overseas Banks 31 Major Gold Trading Centre: 1940s–1970s 31 Banks Operating in Macao 33 References 38 Chapter 3: Seng Heng Bank (1972–2007) 40 3.1 Bank Origins and Acquisition by STDM 41 3.2 Business Model and Expansion Strategy 43 Computerisation 43 Diversification of Business Lines 43 Expansion of Business and Improved Profitability (1989–1996) 45 3.3 Asian Financial Crisis (1997–2000) 48 New Developments 49 3.4 Continued Growth after AFC (2001–2007) 51 Sustainable Competitive Advantage 51 Managed Growth over 2000–2007 52 Unfounded Reports of US Money Laundering Allegations 53 Awards 55 3.5 Analysis of SHB’s Financial Performance 55 Net Interest Income 56 Volume Growth: Loans and Deposits 56 Asset Yields, Funding Cost and Net Interest Spread 58 Other Income 59 Operating Expenses 60 Credit Losses 61 Profitability and Gearing 61 Selected Financial Data 64 3.6 Corporate Governance and Business Ethics 64 Ownership and Board of Directors 64 Risk Management 70 Corporate Social Responsibility 71 3.7 SWOT Analysis of SHB 72 References 73 Chapter 4: ICBC 74 4.1 History of ICBC 74 4.2 ICBC’s Business Model and Expansion Strategy 77 Historical Domestic Focus 77 Commercial Bank Intermediation 78 Attempts to Pursue Fee Generating Businesses 78 Opening up to Foreign Investors in Early 2000s 78 In Search of Excellence 79 Using IT to Deliver Services and Manage Risks 80 Expansion Strategy 80 Winner of Numerous Awards 82 4.3 Financial Performance 83 4.4 Corporate Governance of ICBC 84 The Board of Directors 85 Reference 87 Chapter 5: Acquisition of Seng Heng Bank by ICBC 88 5.1 The Reasons for the Acquisition 89 STDM Openness to Offers 89 ICBC’s Appetite for Acquisitions 90 SHB as an Attractive Proposition 91 A Price Could Be Agreed 94 5.2 The Acquisition Process 95 A Chance Meeting in London 95 Talks Continued in China 95 Informal Approach Leading to Formal Meeting 95 Advisors 96 Terms of the Deal 96 A Full but Fair Price 97 Other Conditions 97 Completion of Process 97 STDM’s Return on Its Investment 98 Taken into the ICBC Group 98 Operation of Merger with ICBC 99 5.3 Post-Acquisition Era 100 Highlights of Post-Acquisition 100 Strong Sector Growth in Demand for Loans and Deposits 100 Strong Growth in Loans and Deposits 101 Increased Risk Appetite 103 Financial Performance 103 Margins and Return on Assets 103 Financial Leverage and Return on Equity 104 Selected Financial Data 105 References 106 Chapter 6: Conclusions 107 6.1 The Acquisition by ICBC: Hindsight 107 6.2 A Success Story 108 6.3 What Can Be Learned? 109 Corporate Governance and Business Ethics 109 Arms-Length Relationship with STDM 110 Risk Management 111 International Expansion Strategy 112 Staff Development and Training 113 Adoption of Information Technology 113 6.4 Concluding Remarks 114 References 115 Index 119