Foreign banks lay out its wealth management market in China

CHINA's efforts to tighten oversight of its 20 trillion-plus wealth management industry are spurring foreign banks to speed up plans to enter the local market or expand there, six people involved in the discussions said.

CHINA's wealth-management industry is the fastest-growing in the world but has historically been linked to the sale of high-risk, illiquid products and lax regulatory oversight.

Recently, however, officials have begun forcing domestic banks to separate their wealth-management businesses, a move sources said was aimed at improving governance as part of Beijing's broader push to reduce debt and limit the sale of risky products.

This comes as Japan's Nomura 8604.T is awaiting a license to launch a wealth business in CHINA, while JPMorgan JPM.N and Bank of Singapore, a unit of Asian lender Oversea-Chinese Banking Corp OCBC.SI are among others considering entries, the people said.

At stake is access to a market where personal assets for investment rose from 11 trillion U.S. dollars in 2012 to 22 trillion by 2017, according to consultancy Oliver Wyman.

It expects that figure to reach 37 trillion in the next five years. Of that, only 5 percent, or 1.1 trillion, was invested offshore in 2017, according to Oliver Wyman.

"CHINA has long been considered the Wild West by the foreign private banks," said an executive at a leading wealth manager in CHINA, declining to be named as he was not authorized to speak to the media.

"With the market moving towards a more regulated environment, onshore business is going to be the most important pie."

The private banking units of top Chinese commercial banks, including CHINA Merchants Bank, Industrial and Commercial Bank of CHINA, and Bank of CHINA dominate the local market, according to Asian Private Banker.

Level playing field

CHINA's five major banks have so far gotten the regulatory nod to set up wealth management units, the CHINA Banking and Insurance Regulatory Commission (CBIRC) said last month.

The units must maintain separate books and accounts and "perform the duties of entrusted wealth management honestly, diligently, and responsibly," the regulator wrote in its December guidelines.

The rules are aimed at strengthening local wealth managers' risk-management practices, including those related to client background checks and the sale of investment products, which often imply a guaranteed return, industry sources said.

Francois Monnet, Credit Suisse CSGN.S private banking head in North Asia, said onshore investors' "normalizing" expectations of returns had created a more level playing field for foreign banks.

Credit Suisse in 2016 hired a senior banker in CHINA to prepare a roadmap for onshore private banking business. "We are at an early stage of strategic readiness in terms of developing what will make sense to increase that presence, and to be ready to deploy that aggressively," Monnet said.

Credit Suisse will compete with Goldman Sachs and UBS on advising wealthy clients in CHINA. CHINA is a "strategic priority" for UBS and billionaires are being created at a faster pace there than anyplace elsewhere in the world, said UBS wealth Management's CHINA business head Marina Lui.

Bank of Singapore plans to set up an office to promote its brand in CHINA as a first step, Samuel Tsien, chief executive of parent company OCBC, said at an earnings briefing last month, adding that it was not looking to operate a "full-blown" private banking business.

JPMorgan has started discussing how to set up an onshore private banking business in CHINA, two people with knowledge of the matter said. A JPMorgan spokeswoman declined to comment.

Nomura, which is said to be in line for regulatory approval this year for the securities joint venture that will allow it to offer wealth management services, also declined to comment.

Stricter standards

In the mass affluent market – clients with investable assets of between 100,000 and one million in CHINA, foreign banks are gearing up to boost growth as a shadow banking crackdown brings such investors into the mainstream.

Citigroup C.N expects its CHINA wealth-management client base to grow faster in 2019 than last year, at more than 30 percent, its country CEO Christine Lam said in January.

HSBC aims to grow its Asia revenues by at least one billion by 2020 from retail and private banking wealth, asset management and insurance, with the CHINA business set to be a big contributor, the bank said in a statement to Reuters.

"CHINA's new wealth management regulations will remove implicit guarantees, set stricter investment standards and standardize the rapidly growing wealth management industry," it said.