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PSBs now look to move out of Hong Kong on bleak prospects

Public sector banks are slowly moving out of Hong Kong as tougher regulations, losses on trade financing business and Covid-related restrictions have diminished the importance of the island city, which was once a premier global financing hub.

Out of the eight public sector banks operating in Hong Kong, four have already closed or are at different stages of closing. Three others are contemplating the future of their operations post-Covid. It is likely that the

() will be the only public sector bank remaining in Hong Kong along with and .
(UBI), for example, has already transferred client accounts to its branches in Singapore and Australia and is waiting for a final no-dues certificate from the Hong Kong Monetary Authority.

“We have stopped doing any new transactions and have already moved accounts. We expect the final clearance within the next couple of months,” said a person directly aware of the bank’s plans. UBI did not respond to an email seeking comment.

Bankers said the PSU bank exodus is due to different reasons that have accentuated post-Covid. “Some are legacy issues like tougher regulations as the Chinese have taken full control. Others are more practical like the one-week quarantine in Hong Kong and hard lockdowns even more than two years after Covid,” said a senior public sector banker.

“The Chinese authorities are also not easy to deal with, especially in the current geopolitics of the region. But the main reason is the weak trade financing business as flows have been routed through Shanghai. Many Indian banks made big losses due to the Covid-linked economic meltdown in 2020 as traders could not pay up and there is also a thinking that so many banks are not required there now,” said the banker.

Besides UBI,

() has also initiated a pull-out plan while is at the advanced stages of closing down operations. has already shut its branch. All three banks did not respond to emails seeking comment.
(IOB) CEO PP Sengupta said the bank is still contemplating the future of its Hong Kong branch. , and were placed under the Reserve Bank of India’s (RBI) prompt corrective action framework as a result of which the Hong Kong Monetary Authority also curbed their lending. Those restrictions are now off but senior executives at this bank said they are contemplating the future of these branches, especially as an overseas office to do dollar financing can be opened in the tax-free zone of Gift City in Gujarat.

“Margins in the HK business are very low and it’s a very small part of our business. Like others, we also saw a spike in NPAs in 2020 but things have settled down now. We applied for a licence to open a branch in Gift City last month and if that comes through, we will have to relook at the necessity of the HK branch,” said AK Das, CEO of Bank of India.

UCO Bank CEO SS Prasad said the bank reviews its overseas operations every year and has already shrunk its operations in Singapore and Hong Kong to just one branch. “We have not taken a view on the remaining operations,” he said.

To be sure, the PSU bank exodus is in line with a government direction in 2016-17, which asked these lenders to ensure only one or two banks are present in these markets in an attempt to conserve capital.

“There has been no new direction but this has been a general view from the government. It is also a fact that trade flows have reduced and Chinese counterparties give little or no business to non-Chinese lenders. The Gift City option has also changed dynamics, so it makes sense for the smaller PSU banks to move out,” the senior public sector banker cited above said.

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