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High stakes

Hong Kong ranks first in Asia as a financial centre, but its private bankers are fighting for supremacy against rival Singapore, writes Kevin McQueen

 

 

In the business of private banking and the race to be the region's hub, Hong Kong needs additional acceleration. Perennial rival Singapore has charged over the past decade to overtake the city as the region's premier private banking centre, and Hong Kong must switch into higher gear simply to match - let alone surpass - the Lion City.

Mindful of the challenge Norman Chan Tak-lam, chief executive of the Hong Kong Monetary Authority (HKMA), has laid out his vision for the city to take what he considers its rightful pole position. He told the banking sector in June he wanted the special administrative region (SAR) to become "the most competitive and dynamic private banking hub in the region."

Speed is of the essence given the high stakes. The International Monetary Fund forecasts that emerging Asia, led by China, will contribute 60 per cent of the world's GDP growth by 2016. And that by 2020, the number of millionaires in mainland China and Hong Kong alone will be a staggering 3.7 million, with an accumulated wealth of US$14 trillion.

Not that anyone's writing Hong Kong and its 39 private banks off, but the challenge from Singapore is formidable given its superior reputation for private wealth management.

However, Enid Yip, chief executive for Asian operations at Bank Sarasin, says Hong Kong already is a global private banking hub and that Chan's industry-rallying speech is a timely call to set the bar higher.

"The industry welcomes the HKMA initiatives, which will increase our standing as a destination for wealth," says Yip. "We have distinct advantages that make us a natural private banking centre." According to the Global Financial Centres Index 2011, Hong Kong ranks first in Asia as a financial centre, and third globally behind only London and New York.

Most interesting about the index, says Yip, is that it is based on five key areas of competitiveness - people, business environment, market access, infrastructure and general competitiveness. In each measure, Hong Kong ranks third and Singapore fourth. For the third consecutive year in 2011, Hong Kong was the world's leading IPO centre. It is also a leading yuan centre.

"Hong Kong has all the necessary elements of being a successful global private banking hub," says Anna Wong, director and head of private banking in Asia at Credit Suisse in Hong Kong. "It is ideally located in a region where new wealth creation is already among the highest globally."

With Western economies still stuttering from the repercussions of the 2008 financial crisis and the euro-zone fiasco, Sermon Kwan, head of private banking for Hong Kong and Greater China at Bank of Singapore, thinks Asia has survived market turmoil well. He believes Hong Kong and Singapore, with their sound regulatory regimes and business-friendly tax policies, will continue to prosper. "With Asia registering strong growth in recent years, it is not surprising that investors are looking to diversify funds into Asian banks," he says.

With the growth of wealth in the region expanding at such break-neck speed - not to mention an influx of money into the Lion City along with its clutch of prosperous citizens - Singapore felt compelled to go full-throttle on wealth management several years ago. Former chief justice Chan Sek Keong told a wealth management conference in 2007 the country should become a thriving private banking centre.

"We must get our infrastructure right," he said. " Not just the sound and successful development of financial institutions, but also the law and its enforcement of legal rights."

So far that drive has worked. According to last year's INSEAD Global Innovation Index of trading centres, Singapore leap-frogged Hong Kong into third place from seventh with US$1.1 trillion in overseas clients' assets under management.

The Monetary Authority's Chan acknowledges that with its rule of law and open market, Hong Kong already has competitive advantages, but stresses the need for a user friendly regulatory framework. In other words, a "disclosure-based regime", where banks are responsible for advising clients on the risks of the investment products they sell.

He said a proper assessment starts with a robust "know-your-client" process, which not only helps fight money laundering and the financing of terrorism, but gives a private bank information relevant to understanding clients' investment needs.

Alvin Ma, general manager of private banking at Citic Bank International in Hong Kong says this practise is common already. He routinely asks clients how they made their money before doing business with them. His interviews can last two-and-a-half hours. "Anything less than an hour is unacceptable," he says.

Jean-Claude Humair, regional market manager for wealth management at UBS echoes that sentiment. "The key is to maintain close communications with clients, so they understand," he says. "The education process is challenging sometimes, but we can see that clients nowadays are more receptive to these changes."

Beneficial too is Chan's admission that private banking and retail banking clients should be differentiated and his expanded definition of what the HKMA now considers a private banking client; a customer with either US$1 million in assets under management (AUM), or total investable assets of at least US$3 million.

Alex Fung, chief executive of private banking (Hong Kong) at Société Générale, says this is a huge step for the industry as it redefines clearly what a high-net-worth client is.

"It also differentiates private banking from retail banking, which is a crucial distinction," he says.

Fung says that allows for different criteria in terms of the products and service the banks can provide.

So what challenges does Hong Kong face - not just from Singapore - as it ramps up its private banking industry. And more importantly, what advantages does it have?

Humair cites the supply of talent able to keep up with an industry growing so fast as the major challenge. Retaining and recruiting good people is not easy - nor does it come cheaply.

It is also a relatively young industry with a limited pool of experienced professionals, so paying disproportionately for talent has become the norm, says Credit Suisse's Wong. "Experience is highly valued in private banking in Asia and a banker needs to build up client bases over shorter time periods," she says.

Fung says a further cost is the difficulty of sourcing grade 'A' office space given Hong Kong's limited supply.

Standardised training is seen as another challenge along with greater regulatory pressure. The industry's mentality has changed since the financial crisis and one of Chan's goals is to introduce industry standards.

Certain training institutes have also recognised the need for accreditation for private bankers, with the Hong Kong Securities Institute having launched the Certified International Wealth Manager programme, says Wong, noting that her bank, Credit Suisse, has its own programme.

Hong Kong already possesses several advantages, especially its links - both cultural and geographic - with the mainland, where most high-net-worth growth is happening. Citic's Ma says Hong Kong is more convenient than Singapore. He illustrates the point by saying he can cross the border at short notice into Shenzhen and catch a quick flight to cities such as Xian or Chengdu to see his own clients, something he couldn't do if he were in Singapore.

Ultimately, in the race for private banking superiority, Fung acknowledges that the market is big enough for both places; Singapore has a favourable position in the Southeast Asian market, while Hong Kong holds the upper hand in the Chinese market.

 

 

 

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