Lucrative business has banks scrambling

Elegant decor, subdued artworks and huge windows from which to enjoy the cityscape - Chinese banks are learning fast how to treat their most valuable clients.

On Dec 26, China Merchants Bank opened its second private bank in Beijing. The luxury office is located in the city's central business district.

"We want the office to create a sense of dignity and privacy, and the private bank is expected to provide more individualized services to top-tier clients," said Zeng Yuran, general manager of CMB Private Banking (Beijing), at the bank's opening ceremony.

It was the second private bank the lender opened in 2007, after a Shenzhen outlet in August.

Three local banks including Bank of China (BOC), CITIC Bank and CMB have opened private banks in the big cities. More lenders, such as Industrial and Commercial Bank of China and China Construction Bank, are preparing to launch their own private banking services.

Setting up private banks one after another is the best test of local banks' business innovation and ability to seize the growth potential of China's wealth management market.

It's no wonder local media dubbed 2007 "the era of private banking in China", though the term is still ambiguous for many Chinese.

Private banking has become highly competitive, as growing prosperity makes China an increasingly important market for wealth management.

China is the second largest wealth management market after Japan in the Asia-Pacific region. A recent study released by Boston Consulting Group (BCG) in October noted that China's wealth market is expected to outpace all other countries over the next five years, with a projected annual growth rate of 17.4 percent.

The country has the world's fifth largest number of households with more than $1 million in liquid assets, trailing only the United States, Japan, Britain and Germany, according to BCG.

The number of millionaire Chinese households was 310,000 by the end of 2006, up from 124,000 in 2001. Given China's continuous and rapid economic growth, the report predicted the number will double by 2011 to 609,000.

Like its peers, CMB's private banking service is targeted at people with 10 million yuan in assets available for management.

Liu Jianjun, general manager of CMB's retail banking department, said that of the bank's 70,000 middle- and high-end clients in Beijing who currently hold its Golden Sunflower cards, 1,000 qualify for the private banking service.

One advantage for Chinese banks developing the private service is that they have already had years of experience managing middle and high-end clients.

In CMB's case, the bank has amassed 400,000 Golden Sunflower cardholders across the country since 2002. The card's minimum deposit is 500,000 yuan. This wealth management experience has given CMB a good client pool to develop its private bank business. Of CMB's existing clients, about 5,000 will be potential private banking customers, Liu said.

BOC also had five years of managing 770,000 middle and high-end clients, with a team of more than 2,000 wealth managers. BOC launched its private banking service in March.

But compared with foreign-funded private banks, local lenders lack experience in customer service and mature product offerings. They also lack qualified wealth managers and trustworthy brands.

Comparatively, foreign-funded financial companies have abundant experience in developing effective client segmentation strategies, customer service and product offerings, and have in-depth expertise and strong communication with clients.

For example, UBS Securities, the first brokerage to get a full securities business license in China, launched its wealth management business in October to serve customers with 5 million yuan in assets under management via six securities branches in four large cities.

The company's wealth management business in China is bolstered by its strong experience in the Asia-Pacific region. UBS is the largest wealth management institution in the Asia-Pacific, with 1 billion Swiss francs in assets under management by December 2006. The new UBS wealth management school in Singapore is expected to provide 5,000 wealth management professionals for the company by 2010.

"But for local private banks, getting experienced wealth managers is the biggest stumbling block for providing private banking services," said She Minhua, an analyst with CITIC China Securities.

(China Daily 01/23/2008 page15)