HONGKONG AND SHANGHAI BANKING CORPORATION: Greatly-increased deposits have placed the country's first bank in a good position to explore new opportunities

Name Thailand's first bank: Siam Commercial Bank? Thai Farmers Bank? The Bank of Thailand? No, the distinction belongs to the Hong Kongand Shanghai Banking Corporation, dating back to 1888. Even before its formal establishment in Bangkok, the bank had provided financial services to both the Thai Royal Family and government agencies, handling transactions and managing accounts abroad. Sonic of these accounts were transferred back to the country once the Bangkok branch was established.

‘Our group’s view has been aried before in Thailand. We have no particular shopping list, and any acquisition in any country has to make economic sense’
NIALL BOOKER
Country manager

The most notable of the bank's early customers was King Rama V, who opened a private account in 1889.

That same year, the banks issued Thailand's first banknotes, which are now become collectors' items. It guaranteed the government's first bond issue and underwrote its first offshore loan syndication in 1905, with proceeds funding construction of the country's railway network.

After 110 years, Hong Kong Bank, as it is known, is the flagship of the HSBC Group, one of the world's largest financial services organizations. The group offers services from trade finance to private banking, structured finance to treasuries, from operations in Asia-Pacific, Europe, America, the Middle East and Africa.

Last year, the HSBC Group controlled as' sets of more than $472 billion and had profits of $8.14 billion. The group employs over 130,000 people in 5,500 offices.

Besides Hong Kong Bank, the group has a presence in Thailand through five other firms: HSBC Finance, HSBC Forfeiting Asia Pte, HSBC James Capel, HSBC Investment Bank, and HSBC Holding.

The group has accomplished much of its rapid growth over the past several years through acquisitions around the globe. It has clear plans for Thailand, but any new investment must meet the demanding standards that have made HSBC so highly profitable.

"Our group's view has been aired before in Thailand. We have no particular shopping list, and any acquisition in any country has to make economic sense," said Niall Booker, chief executive officer and country manager for Thailand.

With a return on equity of 22 % last year, the group's expectations are high. It is difficult for a country manager to ask the board to approve an investment offering returns of 8-9% not when opportunities for higher returns are available elsewhere in the world.

"The competition for capital allocation imposes a discipline on the managers before making a decision," Mr. Booker said.

"We have set our plans -- we want 100% control and we want it to be economical to the group. These rules apply everywhere we do business."

For now, Mr. Booker said his immediate goal was to solidify the bank's position in Thailand, improving staff quality, productivity and mould ing a customer-oriented corporate culture.

Retail and corporate services will evolve continuously with market trends and customer needs, he said. "We want to enhance our retail position. The market needs to be freed up further in order for us to be actively involved. For instance, we want to open more branches."

But a branch network isn't the sole means of reaching the mass market, he noted. Other choices include telephone and computer banking services. These technologies are in their infancy in Thailand, but they offer tremendous premise for banks.

"Although there will still be some time before this happens [in Thailand], in the United Kingdom and-United States, banks are opening.12,000 to 15,000 accounts per month using these technologies."

Not that Mr. Booker expects branches to, disappear. "I agree that a bank has a franchise value, consisting of its branches, the goodwill of its deposit base and its customers."

Hong Kong Bank, like other leading foreign banks, saw its deposits jump during the financial crisis, a beneficiary of the so-called flight to quality from shaky local finance, companies and smaller banks.

Increased deposits meant lower funding costs, resulting in the bank's largely corporate loan book funded more from deposits than borrowings in the money market. It now has 63 billion baht in deposits.

Mr. Booker said revenues were "holding up at a pretty good level". Treasuries did very well after the baht was floated in July 1997, although some declines in the second half of this year was expected because of greater currency stability and a drop in interest rates.

"The degree of leverage to make money in the system has been reduced. Everyone can expect a decline in the revenue in treasury department," he said.

While personal banking is expected to remain subdued because of the economy, Hong Kong Bank has seen increases on the corporate side, picking up multinational clients amid turmoil in the local banking community.

Mr. Booker said chances were high that HSBC Finance would be downsized, to eliminate any overlap with the main bank in services such as mortgage and corporate lending.

"We didn't feel the need to recapitalise the finance firm, since we could have made better use of the capital to generate better returns."

As an executive with experience in other countries that underwent banking crises, Mr. Booker said Thailand's current predicament would lead to greater consolidation of the industry over the next three years.

Hong Kong Bank, meanwhile, would continue to focus on maximizing asset quality. An internal "bad bank" has been established to pursue distressed loans.

Lessons learned from the crisis, he said, include the importance of transparency, good governance, improved productivity and achieving international standards.

The balance between employers and employees has shifted during the downturn, with employers gaining the upper hand, leading to productivity and competitiveness gains. Mr. Booker echoed the views of many executives who said that developing Thailand's educational system was critical. Hong Kong Bank plays a role in this area by offering numerous grants and scholarships each year to students, social-development projects and women's and children's groups.

The Hongkong and Shanghai Banking Corp Ltd
Established in Thailand: 1888
Registered capital: 3.6 billion baht
Main businesses: Corporate banking, loans, overdrafts, guarantees, trade finance, import/export services, treasury and capital market services, securities services and electronic banking; Personal banking, credit card, remittances and personal telephone banking
Number of employees: 618
Assets at end-1997: 85.437 billion baht

Worldwide
Headquarters: Hong Kong
Offices: 585 in 21 countries in the Asia-Pacific region, plus 30 others in 11 more countries
Number of employees: 34,700
1997 gross revenue: HK$50.15 billion
1997 net profit: HK$19.79 billion