The main Hong Kong unit of Bank of China Ltd. expects to sustain a double-digit growth rate in its customer base with the next phase of a mutual market access program that would allow investors in nine mainland cities to buy wealth products in the Asian financial hub.

BOC Hong Kong (Holdings) Ltd. expects to attract more wealthy customers for at least three more years after the launch of the so-called Wealth Connect program between Mainland China and Hong Kong. Its mid- to high-income customer base expanded 18% year over year in the first half of 2021, driving a nearly 22.5% increase in net fee and commission income.

"We are waiting for regulators' final confirmation on the launch of the Wealth Connect program and are conducting some final tests," said Arnold Chow, a senior executive in the bank's personal digital banking products department.

Hong Kong has long been the gateway for wealthy mainland Chinese households to invest in global assets to diversify, and for global investors to tap the high growth in the world's second-biggest economy. Hong Kong and mainland China already have mutual access programs for stock and bond investors. Beijing has been trying to further integrate the financial markets in the Greater Bay Area, a strategic megalopolis that includes Hong Kong, Macao and nine mainland Chinese cities in the neighboring Guangdong province.

No need to travel

Other banks in Hong Kong, including The Bank of East Asia Ltd., Standard Chartered PLC's Standard Chartered Bank (Hong Kong) Ltd., HSBC Holdings PLC's units The Hongkong and Shanghai Banking Corp. Ltd. and Hang Seng Bank Ltd., all told S&P Global Market Intelligence they are beefing up their wealth management teams. However, compared with Bank of China and other state-backed Chinese banks, those banks usually only have a handful of branches in the mainland.

The Wealth Connect program will allow investors to open an account and purchase wealth management products without needing to travel to the other side, but they may still need to visit a local branch to open an account.

Chow expects the program to generate about $700 million in revenue for banks in the Greater Bay Area. "And, Bank of China Hong Kong targets to gain the highest market share in the program," the executive said, citing a wide network of branches in the region as an advantage.

Bank of China has about 900 branches in the nine mainland cities to be covered under the Wealth Connect program. In addition, its local unit has about 190 branches in Hong Kong. Apart from accessibility, Chow said the group also plans to launch an array of products for the program, which includes bonds, deposit products, and more than 100 funds.

Fees and commissions accounted for 27.9% of the net operating income at BOC Hong Kong in the first half of 2021, compared with 19.9% a year ago. The unit of China's fourth-biggest bank by assets expects the growth momentum to continue as the program is expanded to wealth products.

Restrictions, quotas

At launch, Chow expects regulators to allow only low- and medium-risk products to be sold. In addition to the restrictions on products, regulators have also put a quota on the total market size and thresholds for participants.

For example, qualified mainland residents must have net financial assets with a monthly balance of more than 1 million yuan, or financial assets exceeding 2 million yuan in the most recent three months. The program also has a combined quota of 150 billion yuan, shared equally between products sold by banks in Hong Kong and those launched by mainland Chinese lenders, according to a May 6 proposal by the Guangzhou branch of The People's Bank of China.

However, Chow hoped the regulators would ease the restrictions in the future, including lowering the bar for participants and having a higher quota. Even with all the restrictions, the Wealth Connect program may not just boost banks' wealth management business, but also attract customers to other products, he said.

"Wealth Connect will stimulate not only the number of account openings and investment business volume but also incremental business transactions from foreign currency exchange, remittance, and some other cross-selling activities," Chow said.

As of Sept. 6, US$1 was equivalent to 6.46 yuan.