Private banks target the wealthy from tier-two cities

PUBLISHED : Monday, 24 June, 2013, 12:00am
UPDATED : Monday, 24 June, 2013, 4:59am

Major mainland cities remain the primary targets of private banks seeking to tap the investment needs of high-net-worth individuals, but as the nation's economy continues to grow, wealth managers will spread their net to secondary cities as well.

High-net-worth individuals with onshore investable assets of at least US$1 million are not confined to tier-one cities, said Jared Shu, an associate partner in the Hong Kong offices of consultancy McKinsey. More than 75 per cent of the opportunities open to wealth managers could be found in smaller cities.

McKinsey collated and analysed data from more than 160 banks across the globe, based on their 2012 results, and found that overall profitability improved for the first time since the crisis for private banks in Asia in 2008. But it would be a challenge to sustain this growth, it said.

The average wealth of high-net-worth individuals in tier-two cities and below was lower than the average wealth of individuals in tier-one cities, said McKinsey. But the number of well-off individuals in smaller cities was much larger.

Beijing, Shanghai, Shenzhen and Guangzhou are regarded as tier-one cities, while tier-two cities include Chengdu, Nanjing, Tianjin, and Chongqing - all enjoy rapid economic growth.

Tapping into China's onshore wealth market is a challenging task for all types of banks because of policy restrictions on cross-border investments. Many foreign banks therefore maintain a presence in Hong Kong, where mainland high-net-worth individuals keep their wealth, and there are no limitations on investing that wealth offshore.

Chinese banks have networks they can use to source customers in smaller cities on the mainland, but for foreign banks the costs of doing business in the smaller cities were much higher, Shu said.

Domestic and foreign private banks are always looking for new employees with a network of contacts among wealthy Chinese. Besides general banking skills, prospective employees should also have a good general understanding of the types of businesses run by their customers.

About 40 per cent of mainland high-net-worth individuals were entrepreneurs, and people with experience in dealing with large firms as well as small to medium-sized companies would be good candidates as private bankers on the mainland, Shu said.