Bank of China (BOC) is setting out on a strategic expansion of its private banking operations both domestically and overseas in a drive to serve the nation’s rapidly rising band of wealthy entrepreneurs.
It comes as BOC points to a trend of Chinese high-net-worth individuals switching from foreign private banks to domestic firms, a claim that has some substance according to one well-placed independent source, who indicates they are being lured away by collateralised loan products.
Wang Ya, head of BOC’s private banking unit, tells AsianInvestor that the firm – the first domestic player to set up a private banking division back in 2007 – plans to site branches in each of China’s 32 provinces within three years. At present it covers 21.
He adds that to cater to client demand for overseas exposure, BOC will also expand its existing offshore operations. At present it has branches in Hong Kong and Macau and a wealth management centre in Singapore.
Wang says he expects to upgrade the Singapore centre to a full private bank branch and will look to add resources to bolster its overseas operations, particularly in Hong Kong and Singapore.
The domestic private banking team comprises around 500 staff, including investment consultants, product development specialists, sales and marketing.
BOC has 40,000 clients onshore with combined assets under management of Rmb400 billion ($64 billion). It has 26 private bank branches in China and three offshore.
Wang admits that one area in which BOC is seeking improvement in is better internal coordination between corporate and private banking businesses. “70% of clients in our private bank are entrepreneurs, they are wealth creators and their wealth mainly comes from their company,” he notes. “Personal wealth management accounts for only a small portion of their wealth.”
BOC has a total of 4,500 products for clients to choose from, with an investment threshold ranging from Rmb50,000 up to Rmb10 million. Product maturity ranges from one to eight years.
“We are now more like a supermarket,” says Zhou Jianming, who heads product development at BOC’s personal banking unit. “Our consultants can provide clients with any kind of product to cater to their needs. Three or four years earlier there was only soap and washing powder there.”
Product sophistication within BOC’s private bank has raised dramatically over the past six years, Zhou notes. It can now offer anything from low-risk fixed income to private equity and products using leverage. He suggests that while derivatives are still not permitted by regulators, the private bank’s product range is sufficient to provide enough choice for clients to tailor a unique strategy.
In fact, Mei Feiqi, BOC’s general manager of personal banking, says the firm has seen an influx of wealthy Chinese clients who had been using foreign private banks but opted to switch to a Chinese player. He believes this is a trend that will continue more broadly across the industry.
“This [exodus from foreign private banks onshore] happened after the financial crisis, because the products the foreign banks were offering did not generate very good returns,” he notes.
He points out that while clients initially turned to foreign players in expectation that they could offer a more diverse product range, that has proved not to be the case. “Under the regulatory regime in China, [foreign banks] have to launch the same kind of products as onshore private banks,” he states.
One Shanghai-based source indicates that this rotation by Chinese clients appears to be true. "I suspect they are being lured away mainly by collateralised loan products, which typically generate anywhere between 5% to 24% on an annualised basis," he says.
"Some banks, local or foreign, have even engineered loan products/services that yield as much as 100%."