Hang Seng Bank Ltd, Hong Kong's third-largest lender, said it may buy a stake in a Chinese mainland bank and increase investments in the world's most-populous market, as an economic slump in its home market crimps earnings.

"We have deep pockets and are highly capitalized," Chief Executive Officer Vincent Cheng said in an interview. The 62 percent-owned unit of HSBC Holdings Plc will make acquisitions "if there are opportunities and the price is right."

Hang seng on Monday said first-half profit fell 3.8 percent to HK$5.02 billion (US$644 million) as it increased provisions against bad loans in Hong Kong. The outbreak of severe acute respiratory syndrome this year killed almost 300 people in the city and crimped spending in shops, hotels and restaurants, sending the jobless rate to a record 8.6 percent.

To counter the slump, Hang Seng is turning to China's mainland, where the economy expanded 8.2 percent in the first half of this year compared with the same period of 2002. It plans to invest more on the mainland and open at least two branches a year on the mainland, to add to its four outlets and two representative offices.

Cheng declined to comment on which banks it may invest in, though it has been named as a potential investor in China Minsheng Banking Corp - the mainland's only private lender.

Minsheng said on April 2 it was still in talks to sell a stake to Hang Seng Bank and other overseas investors after the London-based Financial Times reported talks with Hang Seng had ended.

While the bank constantly has "dialogues" with Chinese mainland banks, it is "not talking at this moment," Cheng said.

Hang seng's challenge on China's mainland is competing with local lenders such as Industrial & Commercial Bank of China, which has more than 20,000 branches, and foreign banks like parent HSBC, which became the first foreign bank to own a stake in a Chinese rival when it bought an 8 percent stake in Bank of Shanghai.

"The China banking market is very tough," said Tan Eng Teck, who helps manage the equivalent of US$11 billion in assets outside of the United States at AIB Govett Asia Ltd in Singapore. "You have to compete with the local banks - while they have problems with non-performing loans, they have a fantastic branch network."

But tan believes that "trying to use the mainland is really tough. I don't think that should be a catalyst for Hang Seng Bank at all."

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