Here's why BOCHK is Hang Seng's key rival in mass market retail

Winning material share in personal credit and deposits.

According to CLSA, Bank of China’s HK subsidiary is by far the strongest of the mainland banks’ Hong Kong units. Since it formed in 2001, BOCHK has developed into the key rival for Hang Seng in mass-market retail, winning material share from it in mortgages, personal credit and deposits. Its central role as the clearing bank offshore renminbi in Hong Kong further boosts its position. 

Here's more from CLSA:

The mainland’s main chance
The confluence of banking liberalisation in Hong Kong and the emergence of more commercial, outward-looking Chinese banks in the past decade has resulted in mainland giants making a material incursion into the Hong Kong market.

Foremost was Bank of China, consolidating a number of disparate branch operations in 2001 to create BOCHK, whic has emerged as a formidable competitor to HSBC/Hang Seng’s traditional dominance.

Undermining Hang Seng
In terms of branch presence, scale and efficiency, Hang Seng and BOCHK compete head to head. Our analysis of industry market shares and relative profitability reveals that BOCHK has been instrumental in undermining the retail leadership of Hang Seng in key product lines such as housing lending (where BOCHK overtook Hang Seng in 2004), deposits and unsecured personal credit.

Upside from CNH yet to emerge
BOCHK’s preferential position as clearing bank for offshore renmibi (CNH) business in Hong Kong has driven material CNH business volumes, notably in deposits.

However, given the low margins in these early stages, the earnings upside for BOCHK has been limited. In time we expect BOCHK to benefit much more from its centrality to this developing story in Hong Kong banking.

The unequal treatise
Our core investment hypothesis on BOCHK is that it has developed into a strong Hong Kong bank, with significant advantages in scale and diversification.

We analyse in this report that its underlying return profile has converged with Hang Seng’s, yet it continues to trade at a sizeable discount to its rival. We expect this gap to close via BOCHK outperforming and eroding Hang Seng’s premium pricing. BUY BOCHK.