Hang Seng, Hong Kong's third largest bank, has announced it will buy a 20 percent stake in Yantai City Commercial Bank in Shandong province for 800 million yuan.

That would be the bank's second mainland purchase after its acquisition of a 16 percent stake in Industrial Bank based in Fujian province in 2004.

Analysts said the move would help Hang Seng Bank to tap the rising Bohai Rim region, which is believed to be the third economic driver after the Pearl River Delta and the Yangtze River Delta.

The deal will help Hang Seng Bank become the largest shareholder of Yantai City Commercial Bank, though it is yet to be cleared by the mainland banking regulator and shareholders of Yantai City Commercial Bank.

"Bringing in Hang Seng as a strategic investor will facilitate the sharing of experience, enhance corporate governance and promote a better business structure. This will help us to achieve international standards and enhance our market competitiveness," said Zhang Guangbo, vice-mayor of Yantai.

Yantai City Commercial Bank was founded in 1997. According to the bank's official website, its current registered capital is about 1 billion yuan.

It recorded a 34 percent growth in gross profit to about 100 million yuan in 2007.

Hang Seng now has eight branches and 11 sub-branches on the mainland that are mainly located in the Pearl River Delta and the Yangtze River Delta.

The purchase of Yantai City Commercial Bank enables Hang Seng to tap the rapid economic growth of the Bohai economic region as well as enlarge its total investment on the mainland to 7.3 billion yuan.

Vice-chairman and chief executive of Hang Seng Bank Raymond Or had earlier said the bank was adopting a two-pronged strategy in exploring the mainland market - organic growth and acquisition.

"We have been busy seeking acquisition opportunities over the past 18 months banks, securities houses, insurers and asset-management firms are all on our radar," he said.

Enlighten Securities and Futures Vice-President Ricky Cheung said the purchase would strengthen Hang Seng's mainland business in the long term. "But the mainland banking industry is suffering from a fear of tightening control, so the acquisition will not be an immediate booster."

Another Hong Kong lender, Wing Lung Bank, also announced it will purchase a 4.99 percent stake in Yantai City Commercial Bank for 200 million yuan.

The introduction of Hang Seng and Wing Lung Bank brings overseas shareholding of Yantai City Commercial Bank to 24.99 percent, just below the stipulated ceiling of 25 percent.

(China Daily February 1, 2008)