In China’s extremely competitive wealth management market, China CITIC Bank is one of the fastest growing. In 2019, China CITIC Bank’s private banking clients reached 41,900, about 24% higher than the previous year. Assets under management (AuM) from those clients surpassed Rmb570 billion (about $82 billion), a 22.27% increase from the year before. The revenue of private banking – considered capital-light revenue by the industry – accounted for nearly 30% of the non-interest income of the bank’s overall retail business in 2019. One of the bank’s main goals is to diversify its income and improve its capital adequacy, therefore the private banking business is playing an increasingly important role in the bank’s long-term development strategy.
Strong product offerings
One of the main contributors to China CITIC Bank’s outstanding performance in private banking is its product development capability.
Traditionally, private banks in China offer homogenous investment options – products with agreed-upon returns and implicit guarantees of safety. But since China started to clamp down on shadow banking and introduced new asset management laws, new products launched by banks now must be net asset value based, similar to the standards used by mutual funds to value their shares. This means that the investment associated with the products needs to be transparent and fairly valued, while safety guarantees are strictly prohibited.
The new requirements created challenges for banks because many such products need to be actively managed, and they are harder to market to clients without security promises. Even so, China CITIC Bank has fully embraced the new rules and quickly started to design new products to fulfill clients’ needs. In 2019, outstanding wealth management products for China CITIC Bank’s private banking clients grew 40% year-on-year, reaching Rmb372 billion (roughly $53 billion); 34% of the outstanding products were valued using the net asset value principles, 20 percentage points higher than in 2018. These numbers are very impressive compared with similar-sized banks and commendably represent the bank’s agility in facing market transformations.
The explosive growth of discretionary accounts and family trust accounts also attests to the investment management capabilities of the bank. In 2019, the number of discretionary accounts grew five times to almost 200, with total AuM of nearly Rmb35 billion (about $5 billion). Family trust and discretionary accounts are considered ‘the crown jewels’ of private banks’ offerings because they represent the banks’ profound relationships with clients; clients will only trust the bank to make investment decisions on their behalf when they are confident in the bank’s investment know-how as well as its compliance standards.
“For those clients with more than $3 million under management, China CITIC Bank rolled out a service system a few years ago called the “diamond butler”, which provides access to one-on-one assistance 24/7.”
Investment capability is key
China CITIC Bank gains high net-worth clients’ trust because it has a reliable team of investment experts providing high-quality products and investment advice. This also differentiates China CITIC Bank from many others that have failed to build their capacity in asset management over the years.
The bank’s asset management center employs nearly 100 investment professionals that conduct research, trading, structuring and risk management. The process starts with macro research and analysis of various asset classes, which generates both strategic and tactical asset allocation advice that helps guide the decisions made by investment managers. Managers will then carefully select fixed-income and/or equity investment options based on extensive industry and company research, and their actions are overseen by the risk analysis team as well as the legal and compliance department. Cushion management is strictly enforced during the investment process to minimize risks for clients as well; together with a diversified portfolio, clients’ assets are well protected from extreme risk scenarios.
Building diversified portfolios is easier said than done. It can pose great challenges for investment managers because they need to tap into different asset classes and different types of financial instruments, including stocks, bonds, asset-backed securities, preferred shares, hedge funds, trust plans and derivatives etc. Fortunately for China CITIC Bank, it is not working alone; for expertise in various fields, the bank collaborates with other financial institutions within the CITIC group, such as CITIC Securities, CITIC Trust, CITIC-Prudential Fund Management and CITIC-Prudential Life Insurance. Market leaders in their respective industries, these companies can provide extremely valuable knowledge, advice and investment solutions for China CITIC Bank’s private banking clients, a big advantage over other banks with less-rounded support systems.
Technology also helps China CITIC Bank excel in making investment decisions. In 2019, the bank invested nearly Rmb5 billion (about $700 million) in technology development; almost 6% of the bank’s workforce are IT professionals. The bank uses image recognition, natural language processing and machine learning to gather and mine alternative data, which can help predict macroeconomic performance as well as industrial trends. For example, the bank has used language processing tools to index historical central bank statements, which, according to back-testing, can be very helpful when analyzing the fluctuations of consumer price index and interest rates.
In the past five years, China CITIC Bank recorded a compound annual growth rate of nearly 21% in number of clients. This robust growth is not possible without the comprehensive services, including many non-financial ones, that the bank provides.
To cater to the different needs of clients, China CITIC Bank has established five clubs for them to choose from: investors club, health and fitness club, future leadership club, sports club and tourism club. For example, members of the future leadership club will have access to global educational and internship resources for their children; health and fitness club members will be provided with exclusive health consultations and global medical check-up and treatment access; the investors club will not only host financial talks and forums for clients, but also provide investment banking and corporate advisory services.
For those clients with more than $3 million under management, China CITIC Bank rolled out a service system a few years ago called the “diamond butler”, which provides access to one-on-one assistance 24/7. The diamond butler service team can help clients with all types of private matters from planning vacations and arranging urgent medical assistance, to logistics support for weddings and overseas travels. The service system creates tens of thousands of touch points between China CITIC Bank and its clients; about 80% of qualified clients use the service regularly and their satisfaction rate is very close to 100%. The service greatly enhances the bank’s relationship with clients and is considered a main factor in winning client loyalty. In 2019, 79% of private banking clients have maintained or increased their account balance with China CITIC Bank, five percentage points higher than the year before.
The ability to offer high-quality non-financial services has proven to be increasingly critical to winning over clients in China, and China CITIC Bank’s approach has no doubt become exemplary for the entire industry. Combined with its strong product development and investment management capabilities, China CITIC Bank has never been in a better position to capture future opportunities in the world’s second largest wealth market.