On June 22rd, 2016, China Industrial Bank (CIB) and The Boston Consulting Group (BCG) held a press conference in Beijing, where they jointly released a report on Chinese private banking development in 2016, called 2016 China Wealth Report: Growing Against the Trend with Global Asset Allocation. This was the cooperation between CIB and BCG in the field of private banking for two consecutive years.
The report reveals that, despite the slowing Chinese economic growth, the wealth of high net worth individuals (HNWIs) is rising steadily. It is estimated that China's high net worth families will reach 3.88 million by 2020 and their investable financial assets will then account for 51% of China’s individual wealth, offering great opportunities for the development of private banking business.
As the Chinese economy continues to open, the demand of HNWIs for global asset allocation will increase significantly. It is estimated that the proportion of Chinese individual assets to be allocated overseas will increase from the current 4.8% to about 9.4% in the next 5 years, with the Assets under Management (AuM) of overseas investment then increasing RMB 13 trillion.
The wealth of HNWIs is rising steadily and private banking business is growing strongly
The report shows that, despite the slowing Chinese economic growth, the wealth of HNWIs is rising steadily. It is predicted that, from 2015 to 2020, their investable financial assets will increase at an average annual rate of 15%, significantly higher than the projected GDP growth rate of 6.5% over the same period. China will become one of the world's largest markets of HNWIs.
Chen Jinguang, CIB Vice President, is optimistic about the prospect of China’s private banking, saying, “It is estimated that China's high net worth families will reach 3.88 million by 2020 and their investable financial assets will then account for 51% of China’s individual wealth, offering great opportunities for the development of private banking business. However, at the same time, we should recognize the undersupply of private banking services. At present, China's private banking institutions manage less than 20% of the wealth of high net worth families, which implies huge opportunities for development. Moreover, in recent years, the banking industry has been accelerated its transformation, focusing on developing capital-light businesses. During this process, private banking business will face unprecedented development opportunities by taking advantage of connecting investment asset and private wealth.
With diversified asset allocations, private bank clients remain optimistic despite market volatility
The report points out that HNWIs adjusted their asset allocation in 2015 for four main reasons: domestic stock market volatility, the decline of the interest rates, RMB liberalization and the uncertainty of real estate investment. Stock market volatility has enhanced investors’ risk awareness; the decline in the interest rates has stimulated demand for diversified asset allocation; a move towards RMB liberalization is encouraging Chinese investors to get involved in the global market; and uncertainty about returns from real estate investment has encouraged a shift to financial assets.
Despite the market volatility, Chinese HNWIs remain optimistic about the future. David He, co-author of the report, BCG Partner and Head of BCG China's Financial Services Institute, said that, “according to our survey, 80% of the HNWIs believe their household wealth will remain stable or rise during the economic transformation. So do 93% of the ultra-high-net-worth individuals (UHNWIs) with investable assets of over RMB 100 million.” This remark shows that Chinese HNWIs remain optimistic about the prospect of the wealth of both the country and individuals.
Further opening of the Chinese economy will increase foreign asset allocation
The proportion of personal wealth allocated to foreign assets is lower in China than in other countries. As the Chinese economy continues to open, however, it is estimated that this proportion will increase from the current 4.8% to 9.4% by 2020, with the Assets under Management (AuM) of overseas investment then increasing RMB 13 trillion. The increase is mainly triggered by regulation liberalization and growing interest in overseas investment.
According to our survey, about 30% of HNWIs have invested overseas, and 56% have not yet but say they will consider overseas investment in the next three years. As the most dynamic participants in China's economy, HNWIs are leaders in bringing China in line with the international norms. China’s continuous economic globalization will drive the HNWIs to shift from domestic wealth allocation to global wealth allocation.
Increasing overseas investment drivers bring in three major opportunities
The survey points out that, against the background of Chinese economic globalization, RMB exchange rate volatility and declining domestic return on assets, the drivers for overseas investment of HNWIs will be more diversified. The change of drivers will create more business opportunities for Chinese Private Banks: the number of customers seeking overseas investments will expand, including not just ultra-high net worth individuals (UHNWIs) but also HNWIs; the shift from real estate to financial assets will increase demand for wealth management services; and the shift from overseas-oriented one-way flow to domestic-overseas two-way flow will help expand Chinese institutions’ operations into foreign markets.
Clarify firstly the development path and improve five major capabilities
Given Chinese HNWIs’ strong demand for overseas investment, Chinese private banks are in urgent need of international development. Small and medium-sized private banks should focus on developing cross-border services; large private banks will need both cross-border and offshore services; and a few giant private banks may consider expanding in onshore business in overseas markets when their offshore business is well-developed.
To catch the opportunity of globalization, Chinese private banks should improve five major capabilities: identify the target clients, integrate domestic and overseas services, deploy professional investment consultants to guide sales, screen and manage external products and manage overseas market risks and regulations compliance issues.
About China Industrial Bank:
China Industrial Bank (CIB) was founded in August 1988, with its headquarters in Fuzhou, Fujian Province. It was listed in Shanghai Stock Exchange on Feb.5, 2007 (code: 601166), with registered capital of 19.052 billion RMB.
Over the past 28 years, CIB has been adhering to the principle of “sincere service and mutual growth” and committed to providing customers with a wide range of high quality and efficient financial services. By following a differentiated development path, the operation strength of CIB has been markedly enhanced. Starting from being a local bank, and then a regional bank, a national bank and a public listed bank, CIB has now developed into a modern financial service group, with service offerings covering trust, leasing, fund, consumption finance, futures, asset management, research and consulting, digital finance, etc, making it one of the commercial banks possessing the largest number of financial licenses in China. CIB has been consistently among Chinese top 10 banks, global top 50 banks and global top 500 companies. By the end of 2015, the total asset of CIB exceeded 5 trillion RMB, being 5.30trillion RMB; net margin exceeded 50 billion RMB, being 50.2 billion RMB; return on total assets and return on equity reached 1.04% and 18.89% respectively, maintaining one of the best in China.
About the Private Banking Division of China Industrial Bank:
The Private Banking Division of China Industrial Bank was established in 2011 as an HQ-level division, based in Shanghai. With the support of a comprehensive retail financial service platform, covering overseas finance, pension finance, wealth management, credit cards and community banks, the PB Division adheres to the principle of “high starting point, specialized operation, global perspective, and unique features”. In pursuit of offering “all-function, all-coverage, all-around and all-weather” services and becoming a “market leader”, its brand vision is to become “the most reliable private bank”, providing integrated, specialized and customized PB services to meet multi-level and all-round demands.
For the latest information about China Industrial Bank and PB Division, please follow their official Wechat accounts: cibdingyue (CIB); cib-pb (PB Division).
PB Division of China Industrial Bank
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