Private banking in China is entering a new phase as banks grapple with the demands of serving the second generation of Chinas super-rich.
Liu Jianjun, executive vice-president of private banking at China Merchants Bank (CMB), tells Euromoney the changes are readily apparent.
With the private banking model, five years ago, the business was mainly about wealth creation and return on assets. But now the client base is much more concerned with wealth preservation and also tax issues, he says.
The demands are more complex and more diversified. The risk appetite now is for low to medium risk and returns more stable returns. This is a very significant change and there is more interest now in family trusts for example.
By the end of 2013, CMBs private banking customer base numbered 25,000, with total assets under management of nearly Rmb570 billion ($94.2 billion). CMB is the largest nationalized private bank in China.
The first branch of its private banking operation was set up in Shenzen in 2007 and elsewhere in China the bank has established branches in cities including Beijing, Shanghai, Harbin, Qindao and Guangzhou.
Liu highlights some of the specific differences in the way high-net-worth individuals behave now. The first generation of high-net-worth individuals, he says, have typically been concerned primarily with how to carry on their businesses and cement their personal legacies. He says these founders are now looking at how their businesses can be passed effectively to the next generation.
But in many cases, he says, this next generation has interests beyond the core built by their parents and more interest in financing and running other businesses.
|Liu Jianjun, executive vice-president of private banking at CMB|
But he says that the patriarchal nature of Chinese families means most children remain subject to strict controls and others of the second generation, who previously left the country, have come back to work and live in China, balancing out the spendthrift tendencies of the few.
Taking advantage of these familial ties, CMB is one of the first Chinese banks to roll out family trusts and these have been well received by the market so far.
There is also high demand for cross-border, global asset allocation, says Liu. We have adapted our strategy to provide services in kind.
CMB has trained its sights squarely on the ultra-rich, targeting clients with assets of Rmb100 million or more. It has about 1,000 clients in this category and a 70% growth rate within this client sector.
To service the ultra-rich better, says Liu, the bank is creating a global platform. In Hong Kong, Wing Lung bank is the platform and we also have our own branches in Singapore and Hong Kong and New York. In due course, London will also follow.
CMBs own research confirms the long-accepted wisdom that Chinese clients are much more inclined to use Chinese banks than foreign institutions for private banking wherever possible. As Chinese clients take on a more global outlook, Chinese banks need to ensure they are set up to serve in new, often unfamiliar territories.
We are enhancing our suite of services in private banking. Through the creation of wealth and asset management we have extended our services to corporate banking M&A, IPOs and other investment banking services, says Liu.
Speaking in his suite at the Mandarin Oriental in Knightsbridge, Liu says that a London presence is likely to become more important in the coming months and years. He says the UK is starting to be perceived by Chinese institutions as a friendlier place to do business than the US. I would say that in the five years to 2013, the US was the preferred destination. But since 2013 I think long-arm supervision in particular has led to a subtle move away from the US.
For CMB, the competitive environment is a tough one, with rival institutions including ICBC and Ping An making great strides. Liu says CMB and its Chinese competitors and peers must plough their own furrows as they seek to expand.
If you look at the success stories of western banks for us it is not a simple copy or duplication we need local environment expertise. Sometimes client interests need to be guarded at the expense of the short-term interest of the bank.