Consolidation is likely to continue as private banks refocus to optimise their client franchise and cost base
Growth in risk-averse investors forces banks to roll up their sleeves, rethink strategies, and recognise that new tactics are needed
Although the timing and impact of the coming round of interest rate hikes is an issue for Hong Kong's private bankers, that is by no means their only concern.
Other repercussions of the economic downturn and all that preceded it linger, obliging leading institutions to react to a change in customer attitudes and investment priorities and, in certain areas, adopt something of a "back to basics" approach.
"Consolidation is likely to continue, driven by the need to achieve efficiency," says Andy Chai, head of Hong Kong market for BNP Paribas Wealth Management. "Cost-to-income ratios have risen to between 80 per cent and 95 per cent for most private banks, meaning that many players are refocusing to optimise their client franchise and cost base."
The business of attracting new clients is not becoming any easier. The mood among investors is seen to be increasingly risk-averse, so banks are having to roll up their sleeves, rethink strategies, and recognise new tactics are needed to achieve organic growth.
"We want to differentiate ourselves by providing a recalibrated experience for clients and deepening the relationship," Chai says. "As part of this, we will launch a relationship manager training programme later this year to strengthen the full range of core competencies."
A key target is the ultra high-net-worth (UHNW) sector which, in Asia, contains a growing percentage of self-made billionaires. Many such clients are looking for a holistic approach when choosing investment services and products, effectively upping the ante among those competing for attention. "We have earmarked this segment as a lever for growth," Chai says. "So far, we have [made good progress], having a business relationship with one in six billionaires in Asia."
On the upside, he notes that increased transparency within the industry and greater scrutiny from without has been a positive force in building trust with clients. It has also brought a slew of new administrative requirements and impositions.
"The wave of new regulations affects culture, product development, investment strategies and marketing," Chai says. "The impact of regulatory constraints means taking a prudent approach to business management, but we think of this as consistent with our own robust risk control framework and commitment to good corporate governance."
He believes China's "one belt, one road" initiative will be a catalyst for economic stimulus and, by extension, for individual wealth creation. No one should expect, though, to see an immediate impact.
"The estimated cost of the initiative is up to US$8 trillion," Chai says. "We will observe this broad-reaching programme unfold before drawing any conclusions."
Reorganisation in response to changing demands and new opportunities is also on the agenda for Credit Suisse. At the heart of their strategy is making the Asia-Pacific business an autonomous unit. A specific aim is to provide a "more focused and expedited offering" for entrepreneurs, combining private banking and investment banking services.
"Our clear objective is to serve entrepreneurial clients at every stage of their business growth," says Francois Monnet, Credit Suisse head of private banking for Greater China. "This includes financing, access to bond and equity markets, and structuring services to turn illiquid stock holdings into liquid wealth."
As part of the reorganisation, the bank is setting up an Asia-Pacific financing team to provide a centralised structuring, risk management and syndication platform for UHNW and corporate clients. According to Monnet, this will allow better oversight of risk, faster decision making, and economies of scale. The bank has also created a special unit to work with UHNW entrepreneurs. It will have scope to look into co-investment opportunities and strategically allocate balance sheets to meet clients' financing needs.
Credit Suisse defines UHNW clients as those with at least 50 million Swiss francs (HK$402 million) in assets under management or 250 million Swiss francs in net wealth.
"We want to grow our business in emerging markets and have come to the realisation that we have to be very close to clients and understand the different configurations in different countries," Monnet says. "This will give us better decision making and better velocity in taking critical decisions."
He adds that the backdrop of market volatility and economic uncertainty has not necessarily had a negative affect on entrepreneurs. In particular, those in businesses which serve the growing class of middle-class consumers through technology, health care of other products and services are seeing a boom.
"China has created more billionaires in the past 12 months than any other country," Monnet says. "Short-term market volatility does not have to impact the long-term growth prospects for wealth management. But with the weaker yuan and lower return on domestic assets in [mainland] China, we have experienced much greater demand from mainland clients for international diversification and more interest in fixed-income related products."