China Merchant Bank on August 6 opened its private banking centre in Shenzhen in Guangdong Province, the second private bank ever launched by a Chinese bank after the Bank of China (BOC) launched China’s first private bank at the end of March this year. Industry insiders claim that as China fully opens its financial market, the competition on the wealth management market will be fierce, and 2008 may witness a private banking bonanza.
On March 28, China’s first private bank, BOC Private Banking Department opened to business in Beijing and Shanghai simultaneously. It is a private banking business jointly offered by BOC and BOC’s strategic investor RBS (Royal Bank of Scotland) of Britain catering to clients with personal financial assets standing above US$1 million. Clients may enjoy services including: high-quality service offered by exclusive private bankers and investment experts; innovative investment products tailored according to the risk bearability and financial demand of the clients, including financial stock right investment plans; the professional service in the fields of generation planning, education, taxation and real estate; and the in-depth explanation of the changes of domestic legal environment.
On June 25, Standard Chartered (China) Co. Ltd officially announced it was kicking off private banking business in Beijing, and became the first foreign bank to offer this business in Beijing. Standard Chartered claims that its private banking business will focus on the high-end client group with liquid financial assets being higher than US$1 million or RMB8 million equivalent. Other foreign banks, for example Citibank, opened a private banking department in China as early as in March 2006, with target clients being the well-off group with the net value of personal assets exceeding US$10 million. HSBC has not publicly announced its intention to move into China’s private banking business, but it has established a private banking business representative office in Shanghai, to lay a foundation for business development in the future. Bank of East Asia is also extremely interested in the business, and is planning to offer private banking business in China within the year.
Compared with the US$1million threshold BOC set for its private banking business, China Merchant Bank has a comparatively higher threshold, setting it at RMB10 million. The latter claims that in the initial stage, the bank will mainly offer diversified investment financing consultation services, covering such professional fields as household management and planning, education, taxation, real estate investment, collection, and legal advisors, and has for the purpose invited experts from abroad to offer the service. Private banking, also called the “Wealthy Man’s Club” has had a history of over a hundred years in Europe and America, and refers to the privacy banking business service offered to rich individuals or households. Western banks that are comparatively matured in private banking service offer clients proposals and biddings for their M&As, as well as offer appraisal service for clients’ collections and bid for antiques on behalf of the clients, in addition to the traditional service of managing huge assets (for example investment plan and tax evasion). The clients may have access to stocks and bonds that many ordinary people can in no way purchase through the private banking service, and consequently may have the opportunity to invest in private companies, and have the priority in the purchase of IPO shares.
Statistics released by Boston Consulting Group show that calculating in US dollar, China now has 250,000 families each with assets exceeding US$1 million , ranking sixth in the world. The group predicts that the average assets of the wealthy in China will grow at an average annual rate of 13% in the next few years, and by 2009, the amount of assets under management in China will increase to US$263 million. Such a huge market has made private banking business a ground all banks will vie for, and inevitably a strategic core business that promises the highest profit, the most rapid growth and the brightest prospects in China’s banking sector. BOC Private Banking Department claims that the first day the department opened to business, some 20-plus clients arrived for consultation, and the perspective clients are expected to reach 50,000. As the profit brought by private banking clients may be 10 times that of ordinary retail banking, private banking has become a market for which both Chinese and foreign banks are vying.
With the first stroke being grabbed by BOC, other Chinese banks are also making similar moves. Although China Construction Bank (CCB) and Industrial and Commercial Bank of China (ICBC) have not officially put forward private banking business, they all offer similar service in the name of high-end financing. For example, CCB has established a wealth management centre to offer VIP financing service to clients with assets above RMB3 million. Almost all State-owned banks and joint stock banks in China are offering VIP financing service, and are doing well in this field according to industry insiders.
The private bank, however, is not only a retail bank that only offers wealth management service, which used to be the core part of the service offered by private banks. As the financial industry further develops and the demand for clients diversifies, the proportion of wealth management in private banking business is decreasing. As they will plan huge amounts of funding for clients, private bankers must be skilled in various financial products, including shares, bonds, funds and financial derivatives, even hedge funds, investment and trust, taxation business, heritage, collection, and auction.
Commercial banks in China, however, only set foot in retail banking business after 2002, and restricted by division of work operation method, the investment banking business is not included in the retail banking business. At present, most of the commercial banks in China are still retail, commercial and corporate banks. In contrast, foreign banks, after years of professional operation, are skilled in the service and the content of the service. Chinese banks, however, have their advantages in outlet layout and client resources.
