Wealth management

Chinese banks up the ante to lure millionaire clients from overseas private investment houses

More than 60 per cent of mainlanders with personable investible assets worth in excess of US$1 million now hold those offshore, and 10 per cent of that by value are handled by foreign banks

PUBLISHED : Tuesday, 22 May, 2018, 3:18pm
UPDATED : Tuesday, 22 May, 2018, 3:57pm

A growing number of well-off Chinese are choosing to invest their wealth offshore, according to a latest McKinsey report, leaving domestic banks in an increasingly tough fight for high net worth individuals, in what is now predicted to soon become the world’s second largest private banking market.

More than 60 per cent of mainlanders with personal investible assets worth in excess of US$1 million now hold those offshore, and 10 per cent of that by value are handled by foreign banks, claims the study published by the consultancy in Shanghai.

The trend is forcing Chinese banks to up their ante by integrating investment platforms that span onshore and offshore offerings, and strengthen their private-banking teams in cities such as Hong Kong, Singapore, London and Zurich, to fight for a larger slice of the valuable pie.

China is now expected to replace Japan as the world’s second largest market for private banking this year, trailing only the United States, according to McKinsey.

“The winners over the next decade will be those with strong offshore capabilities – we are at a watershed in the battlefield for private banking,” said Elaine Huang, an associate partner at McKinsey, based in Shanghai.

Private banking, targeting US dollar millionaires, is now deemed the cherry on the cake for lenders, playing a pivotal role in bank profitability. In China, US dollar millionaires account for 0.5 per cent of the country’s total retail client base, but they contribute to 20 to 25 per cent of total retail banking assets. 

That number is also growing at twice the average pace of the country’s entire retail wealth management business, said the consulting giant.

Having strong offshore portfolios is now considered more urgent because overseas asset allocation and investment demand is more pronounced among the Chinese billionaires emerging as the core clients of the private banking sector, Huang added.

The winners over the next decade will be those with strong offshore capabilities – we are at a watershed in the battlefield for private banking
Elaine Huang, an associate partner at McKinsey in Shanghai

She said offshore demand is increasingly being propelled by business needs instead of educational demands of the second generation of rich families, as 75 per cent of these high net worth individuals are business owners, who remain keen to extend their reach overseas.

The number of Chinese with financial assets of more than 100 million yuan (US$16 million) is expected to top 134,000 by 2021, up 33 per cent on 2016, the McKinsey report says.

Chinese adoption of online wealth management products second only to US, says report by Boston Consulting and Lufax

The assets of China’s four largest banks – China Merchants Bank, Industrial and Commercial Bank of China (ICBC), Bank of China, and Agricultural Bank of China – each had private banking assets worth 1 trillion yuan last year, according to a separate Deloitte study. 

China’s private banking market can effectively only be tracked back to 2007, the start of a new era for domestic institutions to play catch-up, in a segment long dominated by foreign players.

Scorpio Partnership, a London-based research organisation, produced a league table of the world’s top 25 private banks last year, which lists just three Chinese banks: Merchants Bank (15th), ICBC (22nd) and BOC (24th). 

Switzerland’s UBS was the world’s largest private bank, followed by US rivals Bank of America Merrill Lynch and Morgan Stanley. 

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