KUALA LUMPUR: Hong Leong Bank Bhd (HLBB), in a joint venture with its strategic partner Bank of Chengdu Co Ltd (BOCD), has been given the greenlight by the China Banking Regulatory Commission (CBRC) to start offering consumer financing in central and western China.

HLBB has a 49% stake in the joint- venture company, Sichuan Jincheng Consumer Finance Ltd Co (SJCF), while BOCD holds 51%. HLBB holds a 20% stake in BOCD, a commercial bank which has 31 branches and 116 outlets in Chengdu, Sichuan province.

HLBB and BOCD had in January received CBRC’s approval for the proposed JV to operate a licensed consumer finance company.

In a statement yesterday, HLBB said for a start, SJCF would develop business alliances with major electrical appliance chain stores, reputable consumer electronic and computer stores to offer financing to consumers for the purchase of consumer durables.

It would then expand the scope of financing to furniture and will also offer general-purpose loans to consumers for travel, wedding and education. Loan applications will be carried out at the site of purchase.

Apart from the BOCD-HLBB JV, Bank of Beijing and Bank of China have also received such approvals from CBRC.

According to a statement on CBRC’s website, Bank of Beijing has proposed to open a solely-owned Bei Ying Consumer Finance Co Ltd in Beijing while Bank of China intends to establish Zhong Yin Consumer Finance Co Ltd in Shanghai jointly with Shanghai Brilliance Group Ltd and Shanghai Lujiazui Finance Development Co.

Starting July 22, 2009, domestic and foreign institutions are allowed to establish consumer finance companies in Beijing, Shanghai, Chengdu and Tianjin.

The move is part of China’s efforts to boost domestic demand. Before the new ruling, consumer loans in China were available only through banks and automobile financing companies.

Analysts said this was a major milestone for HLBB to make further inroads into China where there was a great potential for consumer banking services given its large population.

For the first half of the financial year ended Dec 31, 2009, HLBB posted a higher share of profit of RM11.3 million from its 20% stake in BOCD. The contribution was expected to continue growing following the permit to provide consumer credit, analysts said.  

“Strategically, it will allow us to expand and diversify our consumer banking capabilities into a new market.

“We will ride on Bank of Chengdu’s embedded presence and established brand in the Chengdu community to quickly expand the JV’s reach and customer relationships,” HLBB’s group managing director and CEO Yvonne Chia said in the statement.

The primary focus of SJCF, which has a registered capital of 320 million yuan (RM158 millon), would be in the consumer- financing business.

HLBB said its experience in consumer finance, in addition to BOCD’s knowledge of the local culture and the consumer market in Chengdu, would provide a strong foundation for the development of the JV.

Besides BOCD, HLBB has also partnered Industrial and Commercial Bank of China Ltd (Singapore) to launch and offer trade settlement services in yuan. It is also working with China Development Bank to develop cross-border financing and funding opportunities.

“We are moving to position ourselves in the China growth story. The bank is serious about China, and we are convinced of the huge potential upside.

“We have the right partners in China and we want to grow with them... if we get our act right, in three to five years, we will have transformed the bank’s profile into one that is embedded in the region,” Chia said.

This article appeared in The Edge Financial Daily, March 2, 2010.