Over the past five years, China’s private banking sector has burgeoned from scratch. So far, the sector has established a suitable business model and framework. By the middle of this year, CMB’s private banking business unit was serving 18,401 customers and managing total assets worth 412.125 billion yuan, up 11.57 percent and 11.42 percent respectively from the start of the year. Wang Jing, the vice general manager of CMB’s Private Banking Department, told a reporter from NBD that the bank’s profit from private banking this year rose by over 50 percent compared with the same period last year.
In the new era, how will CMB’s private banking division respond to challenges from competitors and third-party institutions? What will CMB do to help customers adapt asset allocation to the changing macro economy? Regarding these questions, Chen Kunde gave an interview to the reporter:
Customers have increased risk awareness
NBD: Over the past five years, in what ways the customer requirements have changed? Have their requirements changed or has your service reshaped their requirements?
Chen Kunde: Customers are diversifying their asset classes. In 2008, most customers purchased stocks and properties, and deposited money. Later, they moved to private equity funds, trust plans, and various bonds. I think the change is directly driven by the growth of private banking. Previously, customers couldn’t get enough advice or simply didn’t know the value of the investment advice. In due time, private banks began to offer them specialist advice. Some customers feel a need to diversify their asset allocation and thus optimize wealth management.
NBD: Since the beginning of this year, what products have your customers purchased more? What do you suggest your customers do given China's slowing economy and a fresh round of quantitative easing in Europe and the U.S.?
Chen Kunde: Since the second half of last year, our customers have increased investment in fixed income products, including bond funds, private equity funds, fixed income trust plans, and some classified products. I think customers basically tend to be aware of shrinking profits and have increased risk awareness. Given the investment value, the bond market will expand.
Moreover, the stock market will bottom out when China’s economy plateaus. Therefore, risks are falling. Furthermore, we have more opportunities overseas, as the renminbi interest rate stabilizes and capital accounts are open up to foreign investors.
NBD: For high-end customers, risk control may outweigh returns. How can you help them isolate risks?
Chen Kunde: In the initial stages, private business owners tend to merge corporate and personal assets without isolating risks. As a result, their assets are at risk when their companies experience operating risks or something unexpected happens. For example, some families buy housing in the name of their children. In this case, we need to isolate risks. We’ll consider such risks for our customers, say, advise them to avoid risks by purchasing insurance and trust products, or isolate their assets and liabilities.
Offshore assets account for an average 20 percent of our customers’ asset portfolio.
NBD: CMB owns 100 percent of Hong Kong’s Wing Lung Bank. So you can help your customers optimize their allocation of onshore and offshore assets. What’s the percentage of their offshore assets? What’s the growth trend? What opportunities do we have for offshore investment?
Chen Kunde: According to my rough estimate, offshore assets account for an average 20 percent of our customers’ asset portfolio, and the share is growing these years apparently because of slowing renminbi appreciation. When the renminbi appreciated previously, customers hesitated to put their money overseas. Now appreciation is slowing down, and they're beginning to increase their share of overseas assets.
Overseas investment markets are quite different from the Chinese mainland market; for example, you basically have no interest for overseas deposits. Thus, some customers have suffered heavy losses by investing in high-risk areas. So customers are keen to look for strong offshore investment opportunities. We’re also seeking more opportunities for our customers. Many mainland enterprises issue bonds in Hong Kong, for example. They're household names in China, but some overseas agencies undervalue them. As a result, they sometimes suffer a notable discount in bond price. For another example, many European funds were underselling the bonds of some actually very good companies recently. When the prices go down, we suggest our customers buy bonds and yield high returns over time.
Helping Customers with Financial Planning
NBD: What's your plan for private banking?
Chen Kunde: Currently, CMB has set up a private banking service centers in most tier 1-2 cities home to high-end customers. Next, we’re planning to focus on expanding and strengthening our customer service team.
China has suffered an economic slowdown these past two years. Many customers need investment opportunities and funding. Therefore, we’ll help them plan their finances. In addition, we’ll help them design the percentages of offshore and onshore assets, identify potential investment risks relating to asset transfer, and find ways of retaining asset value. I think it’s becoming more and more important to plan for asset allocation. So we’ll customize services for our customers.
NBD: As a private banker, what's your position on the challenges from trust companies and securities brokerages? What do you think about the comment by industry insiders that private banking services are becoming homogeneous?
Chen Kunde: Each has its unique advantages. Securities brokerages have their edge, so do trust companies. But banks are competitive in terms of service integration.
Previously, many institutions attracted customers with high-return products, but this cannot last long. Trust companies sell single products. China's market conditions have in a way catalyzed the trust market boom; however, bank loans may weigh on the market if the property market bodes ill for the trust sector. To be fair, wealth management is costly. You have to pay a lot for office space, for example. Naturally, banks enjoy a competitive edge in terms of capital operation and mechanisms.
When it comes to product homogenization, we should first make it clear what makes a private banking product. Banks provide quite different offerings if you see private banking products as financial solutions. Trust, finance and insurance products can all be defined as financial solutions. As with traditional Chinese medicine, a prescription, namely a combination of different medicines, is more valuable than a single drug, be it Chinese angelica or wolfberry.