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Virtual Banking Launch Shouldn't Erode Hong Kong Banks' Advantages

We still think branch networks hold value for customer service and cross-selling.

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The Hong Kong Monetary Authority has awarded three virtual banking licenses to a number of joint ventures with businesses expected to launch in six to nine months. The virtual banks only need to maintain a principal of business in Hong Kong as a contact for the HKMA and will benefit from a lower cost base with no physical branch requirement. The three license winners are Livi VB, consisting of BOC Hong Kong,, and Jardine Matheson; SC Digital Solutions, a joint venture of Standard Chartered, HKT, PCCW, and Ctrip; and ZhongAn Virtual Finance, a partnership between ZhongAn Online and Sinolink. Another five virtual bank applications are being considered by the HKMA.

While the new entrants should increase competition in the Hong Kong banking sector, we do not expect competitive advantages to be eroded for HSBC, Hang Seng Bank, and the main operation of BOC Hong Kong, all of which we rate as having a narrow economic moat. The Hong Kong banking sector is already highly competitive, and all three banks have seen their large deposit market shares remain largely stable. Given the high population density and maturity of the market in Hong Kong, we continue to see the banks’ existing branch networks as valuable touchpoints for customer service and cross-selling opportunities. All three banks have supplemented their branch networks with full-service digital platforms.

Michael Wu does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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