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| Friday, 9 July 2004 |
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Managing Asia's new millionaires by Joel Baglole, Hong Kong
As Asians get richer, they are creating a host of opportunities for banks across the region. Private banking where financial institutions manage the finances, investments and personal matters of the rich and super rich - is taking off across Asia as the number of high net-worth individuals in the region explodes. Banks big and small are aggressively expanding their private-banking divisions in hopes of attracting wealthy clients and their families. But in the region's three biggest economies - Japan. China and India - regulations have proved a major entry barrier, one that forces foreign private banks to adopt different strategies to overcome it. But so sure are they of the scale of the opportunity here, that they are aggressively building their presence even as they lobby to be let in. Lifted by strong economic growth across the region, the number of households in Asia with assets of $1 million or more rose 21.4% to 1.9 million between 2002 and 2003, according to the Boston Consulting Group. In all, those households had $6.19 trillion worth of assets, up 22% from 2002, and accounting for 22.6% of the $27.40 trillion personal wealth of high-net-worth individuals worldwide. The latest world wealth report issued by investment bank Merrill Lynch showed that the number of high-net worth-individuals - defined as people with financial assets of at least $1 million, excluding home real estate - was growing fastest among certain countries and regions of Asia. In Hong Kong, for example, the number of millionaires rose to 45,000 last year, an increase of 30% from 2002. India now boasts 61,000 millionaires, a rise of 22% in one year. The number of highnet-worth individuals in South Korea climbed 18% in 2003 to 65,000, while China saw its number of Millionaires grow 12% to 236,000. "Business in Asia has grown very rapidly in the past five years," says Enid Yip, executive director of the private banking arm of Credit Suisse Group, who is based in Hong Kong. "We face severe competition here in Asia," she adds. Wealthy individuals have turned increasingly to private banks to manage their money since the 1997-98 Asian financial crisis. "Because of the crisis, clients have become more international in their out- look," says Monica Wong, chief executive for Asia at HSBC Private bank (Suisse) in Hong Kong. "Also, since the crisis, people have become more open to having their money managed professionally rather than do it themselves," she adds. In a sign of the strong demand for private banking, Wong has this year hired 70 new bankers. They join her existing team of 350 bankers, who together handle 6,000 clients and $54 billion of assets in Asia. A private banker typically handles 40-50 clients at a time. Many banks cap the maximum number of clients each banker can manage at one time. Studies show there is plenty of room to grow in private banking. According to Barclays Bank, two-thirds of Asia's individual wealth is not being managed by private banks.
In fact, only 7% of the personal wealth in Asia is currently being managed by private banks within Asia, according to Barclays. The majority of money in asia that is being professionally managed is being done so from the United States and Europe. "If I could get even two or three percent of the money that's not being professionally managed, I would be doing well," says Nigel Sze, chief executive of Barclays Private bank in Asia. Citigroup forecasts that private banking in Asia, excluding Japan, will grow at an annual rate of 10% over the coming five years. Private banking in the region remains heavily fragmented, with big players such as UBS - which has $50 billion of assets under management in Asia - controlling less than 1% of the market. Not surprisingly, banks of all kinds have been charging into private banking. Today, global financial giants HSBC and Citigroup compete for wealthy customers with investment banks such as Goldman Sachs and JPMorgan Chase, as well as with boutique private banks such as SG Private Banking and Banca del Gottardo. To snag lucrative clients, private banks offer an array of products and services that cover nearly every aspect of life. Private bankers help clients invest in everything from stocks and bonds to hedge funds and currencies. They also help people buy cars and homes, manage their taxes and plan the handover of their businesses and wealth to their children and grandchildren. Some high-net-worth individuals have as many as 10 private bankers. The criteria to join a private bank vary. At UBS, clients need minimum of $1 million in bankable assets to open an account with the Swiss bank. At JPMorgan Private Bank, prospective clients must have a minimum net worth of $25 million and $10 million of liquidity, and accounts cannot be smaller than $5 million. "We target ultra-high-net-worth clients," says Michael Fung, chief executive of JPMorgan Private Bank in Asia. Top-end clients can have as much as $1 billion placed with a private bank, while many clients start out with accounts of $1 million and raise that amount slowly over time. Bankers say most client accounts average between $2 million and $5 million. Bankers in the region say they're especially keen to tap into China and India, where there's very little professional wealth management being done. However, regulations bar foreign financial institutions from conducting private banking in those countries. Some private banks have opened representative offices in major cities such as Beijing and Mumbai and are aggressively lobbying government officials to allow in foreign competitors. But bankers say there's currently no indication of when Beijing and New Delhi may allow them to operate in their domestic markets. Residents of China and India are prohibited from investing offshore. Similarly restrictive for foreign private banks in Japan - though some banks have gained access to the market through joint ventures with Japanese financial institutions and special operating licences. Bankers say Japan's restrictions are particularly frustrating as the country is home to the wealthiest individuals in Asia. According to the Boston Consulting Group of the $6.19 trillion of individual wealth in Asia, $4.52 trillion, or 73% of it, is in Japan. As with elsewhere in Asia much of the wealth in Japan sits in bank savings accounts or time deposits, where it earns almost no interest. "Japan and China are big markets. But they're very restricted. We'd love to be there but we can't get in right now," says JP Morgan's Fung. Markets that are open and where individual wealth is growing include Hong Kong, Taiwan, Korea and Australia. Many bankers single out Taiwan as a particularly robust market, citing its booming hi-tech industry and manufacturing base, as well as the access companies there have to mainland. China as factors driving the wealth creation. "We expect that 30% - 35% of our new business will come from Taiwan over the next two to three years," says Barclays' Sze, noting that Taiwan is doing a lot of the high-end, value-added manufacturing for companies based in mainland China. "Taiwan is the most profitable and important growth market for private banking in the region," he adds. Despite the current hurdles to managing wealth in China, India and Japan, many bankers say they are nevertheless beefing up operations in the region in anticipation that those markets will eventually open more to foreign private banks. Bankers also stress that people in China and India are only going to get richer in coming years as the power house economies of the two countries grow rapidly and become more Western and capitalist. Bankers say they also hope their offshore businesses in centres such as Hong Kong and Singapore will expand as restrictions placed on offshore banking loosen across Asias. And, even though China is currently off limits, its rapid economic expansion - 9.9% annualised growth last year - is helping other people in the region get rich. "As a result of China, the creation of wealth in the region has been very strong particularly in Hong Kong, Taiwan and Korea," says Daniel Truchi, Chief Executive of SG Private Banking, Asia-Pacific who is based in Singapore. Countries where business is lagging include the Philippines, Malaysia and Indonesia. Political worries and concern about the financial systems in those countries has prompted many wealthy people to move their assets to safe havens in Europe and the US leaving little left for private banks in Asia. (Courtesy - Far Eastern Economic Review) |
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