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Feature: Chasing wealth in Japan, China

By SONIA KOLESNIKOV-JESSOP, UPI Business Correspondent

SINGAPORE, July 13 (UPI) -- Asia is now the third-largest and the fastest-growing market for private banking. With potential revenue growth for banks in the double digits, many are actively chasing high-net-worth clients in the region, with Japan and China seen as the two markets with the best potential over the coming years.

"The potential in Japan is the biggest in Asia. But although on paper Japan is bigger than China, in reality in terms of asset base China may actually overtake Japan," Rolf Gerber, chief executive officer of LGT Bank in Liechtenstein (Singapore) Ltd. told United Press International on the sidelines of a lunch organized by the Foreign Correspondents Association.

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"Japan investors have traditionally had an island-set mentality. Things are changing slowly; whether the banks can capitalize on it and how fast -- that remains to be seen," he said.

Daniel Truchi, CEO of SG Private Banking (Asia Pacific), also believes the potential in Japan is huge, pointing out the country has two times the wealth of the rest of Asia.

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According to Bain & Co., the average penetration of private banks in Japan of high-net-worth households is still low at about 25 percent, compared with a 60-percent penetration in the United States and Indonesia and more than 50 percent in Taiwan and Hong Kong. Penetration of private banking in China is about 5 percent to 6 percent.

"For some very strange reasons, the Japanese investors prefer to give their money to local banks, nearly paying interest to its bankers as he earns virtually nothing," Gerber noted.

"Most high-net-worth individuals in Japan do not know what private banking is. They keep their assets in property, stocks and cash. They don't know about diversification," Truchi added. SG launched its private-banking operation in Japan in 2002 through the acquisition of Chase Trust Bank Japan and manages assets of more than $3.2 billion in the country. "We planned to break even within three years, and we're on schedule," Truchi said.

Private bankers believe Japan investors' lack of interest for private banking might start to change now that the local economy is doing better. However, Gerber warned it will take a "very long time" to change mentality.

According to the 2004 World Wealth Report published by Merrill Lynch and Cap Gemini, the number of high-net-worth individuals (with financial assets of at least $1 million, excluding home real estate) rose 8.4 percent in 2003, while their wealth gains rose by 10 percent to $6.5 trillion. In China and India the number of wealthy individuals showed impressive growth rates of 12 percent and 22 percent respectively, while the number of wealthy individuals in Hong Kong rose 30 percent and in Korea 18 percent.

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The report forecast that the financial wealth of high-net-worth individuals in Asia could grow to $9.3 trillion by 2008.

Meanwhile, a separate recent survey by PricewaterhouseCooper showed private banking in Asia was expected to rake in revenue growth of 10 percent a year on average, with some bankers even predicting 20 percent to 30 percent expansion annually.

"The private banking potential in Asia is still relatively huge, and there are lots of opportunities," Gerber noted. LGT Bank, which is privately owned by the family of the prince of Liechtenstein, only opened a bank in Singapore in October 2003. While it is currently managing $4.5 billion in assets in Asia, it hopes to raise that amount to $7 billion by 2006, Gerber said. Worldwide, the boutique bank manages about $40.8 billion.

Besides Japan, China is viewed as a market with strong potential over the long term, although it is not yet the El Dorado that some believe.

"There are currently two markets in China for private banking: onshore and offshore. Onshore it is not yet possible to do any large operation, because of regulation, regulation and regulation," Truchi said, noting the local equity market is still small, while the treasury and derivative markets are not yet developed.

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"However, as soon as the deregulation takes place with the (World Trade Organization), then we may enter the onshore market by 2006-2007," Truchi said.

"As far as the offshore market is concerned, yes the potential is high, but a lot of Chinese higher-net-worth individuals prefer right now to invest their cash into China, because the returns are much larger than what private banking can offer," he added.

Gerber believes that Singapore will be a "natural recipient" for offshore Chinese money, though bankers have to be careful and scrutinize the origin of the money.

While the bulk of private banking activity in Asia used to be done out of Hong Kong, Singapore has been catching up thanks to strong secrecy laws and appropriate deregulation.

"With the increasing influence of the Chinese mainland government in Hong Kong, many investors, especially European investors, feel more secure doing their business out of Singapore," Gerber said.

To illustrate the rise of Singapore, Truchi noted that while two years ago, two-thirds of the bank's booking was made in Hong Kong, now two-thirds is made out of Singapore, even though most of its business is coming from North Asia.

The two bankers also believe that Singapore stands to benefit from a "perceived" softening in secrecy law in Switzerland.

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SG manages more than $10 billion in Asia; in 2003 income rose 40 percent, while assets under management grew by 25 percent.

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