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Elaine Chan

Happiness Express, Wealth-managed Golden Account, Golden Personal Wealth Assistant, Happy Master and Sunflower have a  common goal - a better future.

They are wealth-management products introduced by mainland banks for its newly rich - a group that is increasing in numbers thanks to  rapid economic growth.

Though the business of managing wealth or personal finance remains inferior to traditional services in its contribution to banks' earnings, that share is growing slowly but surely, especially in the coastal cities.

'The rapid expansion of wealth-management service is inevitable against the background of fast economic growth,' said Liu Jianjun, the general manager of China Merchants Bank's retail banking. 'Twenty years ago, there was no money ... now there is idle money  and [people] look to increase  its value.'

The sector certainly has grown for China Merchants,  a pioneer in providing personal finance service to what it defines as high net-worth customers - those with assets of 500,000 yuan or more.

Although the customer segment makes up less than 0.2 per cent of the bank's 38 million-strong customer base, they contribute a third of earnings.

Such growth prompted the banking regulator to move last Thursday to lay out rules preventing over-zealous wealth-management investment operators from introducing overly risky programmes to customers.

The China Banking Regulatory Commission rules require that wealth-management products that guarantee returns and involve higher risks to be subject to regulatory approval.

China Merchants' early entry into wealth management was a strategic move to lure  customers from the four big state-owned lenders, which dominated the banking sector in the mid-1990s. It now manages 12.56 billion yuan worth of clients' assets.

'Through wealth management, we built and expanded our customer base,' Mr Liu said in an interview with China Business.

Wealth management in the mainland has also been encouraged in the past few  years because rate cuts crimped interest spreads, compelling banks to seek new areas of revenue growth.

The relatively younger shareholding banks including  China Merchants, China Minsheng Banking Corp and Shanghai Pudong Development Bank have maintained an aggressive strategy. By contrast, the Big Four have taken a somewhat reactive mode and in the past couple of years have started playing catch-up.

Wealth management - and retail banking in general -  have emerged as a less risky business as banks struggle to cut bad debts.

Corporate lending also has shrunk as the central government introduced measures to cool overheated sectors while companies  have turned to alternative means of raising funds, including initial public offerings.

Mr Liu said one problem  was the lack of accurate  information on the financial wealth of clients, an inadequacy that had affected the development of creative asset programmes for individual customers.

In a retail banking sector report issued last year, management consultants McKinsey & Co  estimated that although high net-worth customers made up only 2 per cent of all mainland banks' retail customers, they accounted for between 55 per cent and 65 per cent of retail banking profits.

For the same reason, foreign banks - limited to foreign currency-related retail banking products by Chinese regulations - are focusing  resources on the segment.

Hongkong and Shanghai Banking Corp's Peter Wong Tung-shun said the global giant was  targeting to open branches in 40 cities in the mainland in five to 10 years. Sub-branches would be opened in  each city, focusing on providing wealth-management services.

Despite their size and resources, the client bases of foreign giants such as HSBC and Citibank are no match for domestic rivals, which is  where their strategic alliances with Bank of Communications and Shanghai Pudong Development Bank come in.

Come 2007, competition between foreign and domestic banks will further heat up when the market opens fully under World Trade Organisation terms.

But Mr Wong believed the market potential was simply so huge that HSBC would have a role to play.

'The retail lending in the mainland only accounted for 10 per cent to 15 per cent of the total lending of the industry at the moment, far from the 50 per cent in western countries,' he said.

He said HSBC's overriding advantage was its strong brand name  and  international network.

Perhaps so, but  Mr Liu pointed out that what mainland customers really needed were investment products at home and an extensive domestic network of branches and sub-branches to support them.

'Even after December 2006 ... many foreign banks would not be able to expand so quickly,' he said.

Additional reporting by Helen Wu



Boom times set dollar signs flashing