The Canadian subsidiary of HSBC Holdings PLC is looking at plunging even deeper into Canada’s retail banking scene following its successful blitz on the mortgage market.
HSBC Bank Canada, the country’s seventh-largest lender, has historically drawn the largest share of its profit from its commercial business. The bank has, however, ratcheted up its retail ambitions over the past 18 months, as demonstrated by its undercutting of other major banks with a five-year, 2.39-per-cent variable mortgage rate.
“We’ve let the market know that we’re open for business,” said Barry Gollom, a senior vice-president for the subsidiary’s retail and wealth management division.
According to the subsidiary, HSBC has targeted Canada as a priority market and is bidding to position itself as a global alternative to the Big Six lenders.
“No international bank has our Canadian presence and no domestic bank has our international reach,” HSBC Bank Canada noted in recent financial filings.
That focus means HSBC has “invested a lot of money” in supporting its business there, Gollom said.
And offering lower rates is just one of the tactics HSBC Bank Canada has used. In addition to a focus on advertising, Gollom said the bank has also extended branch hours, and is now keeping a number of them open on Saturdays.
“We have seen a growth in market share on the mortgage side, on the deposit side,” Gollom told the Financial Post.
HSBC Canada is also looking at adding more brick-and-mortar branches over the coming years. Gollom said that the bank has 130 in the country already, but that there is “definitely opportunity” in the Greater Toronto Area.
“Do we want to grow to 1,000 branches? No,” said Gollom, who joined HSBC about a year ago, after previously managing Canadian Imperial Bank of Commerce’s mortgages and secured lending portfolio. “But we know that we would like to have more than the 130 that we have and so we’re just figuring out how much that will be.”
Yet HSBC’s Canadian campaign comes amid the usual concerns about the country’s housing market.
The Bank of Canada reiterated recently that both high household indebtedness and housing market imbalances remain the most important vulnerabilities for the financial system, albeit ones that may have become somewhat less glaring. The housing market has also been cooled by government intervention and new mortgage rules, including foreign buyer taxes and a “stress test” for uninsured mortgages.
Gollom said a combination of factors were at play earlier this year, such as poor weather and a “ramp up” of mortgage activity that took place at the end of 2017, ahead of the new mortgage rules coming into effect at the start of this year. Now, however, Gollom said the bank is “seeing things start to pick up.”
“We’re not taking on, I don’t think, incremental risk,” he said. “I don’t think it’s an incrementally risky time to be in the mortgage business.”
Rob McLister, founder of RateSpy.com, said HSBC’s timing couldn’t be better.
“Marketing for prime mortgages is all going digital,” McLister said in an email. “Time-pressed web-savvy consumers want to see ultra-competitive everyday low rates in black and white, and that’s what HSBC’s got.”
HSBC’s strategy has also “been wildly successful in generating new customers,” McLister said, with the low rates used as “an entry to the customer’s entire wallet.”
“The bank can market rates this low partly because its origination costs aren’t as big,” he added. “Unlike banks that pay fat commissions to mortgage specialists and brokers, HSBC’s mortgage sales force isn’t commission-based.”
In Gollom’s view, the bank is playing the long game.
“We give the very competitive rate up front but we’re thinking of it from a longer-term investment,” he said. “We don’t look just in terms of this one mortgage, at this one rate, for a five-year period.”