Singapore banks turn to China's wealthy to offset slumping stock markets

Some banks are eyeing family offices to serve Chinese entrepreneurs.

Singapore wealth management businesses have become stars in their respective banks in 2017 and in the first quarter of 2018. For Q1, the wealth management businesses of UOB, OCBC, and DBS all grew sharply by 30%, 22%, and 17% to $165m, $727m, and $1.36b, respectively.

Also read: Singapore private banking bosnues up by as much as 7% in 2017

However, the great volatility that has struck global markets is threatening to steal wealth managers’ lustre and inevitably affect their banks’ financial health. Notably, wealth management contributed to 31% of OCBC’s income in Q1.

“There is an expectation of asset under management (AUM) contracting as a whole in the possible absence of net new money (NNM); NNM is likely to be relatively low as markets have been quite volatile and difficult to call,” said EY Asean financial services leader Brian Thung.

Jefferies analyst Krishna Guha noted that whilst banks may feel the impact of volatility, they will not do so right away. “As far as impact is concerned, it may not be immediately visible in [Q2] results due in next couple of weeks. Over a period of time, we hope they lead to more AUM, fees and/or lower cost,” he said.

Thung is similarly hopeful banks could surpass market headwinds ahead. “Whilst this could make it more challenging to hit their initial Q2 targets, banks and their wealth management units still have good levels of AUM and there is little expectation of high redemptions,” he said.

Guha noted that different products appeal to wealth management clients at different points in the market cycle. “Soft and volatile’ equity markets may lead to clients increasing transaction activity, engaging in hedging, shifting to more discretionary services, switching to other asset class,” he explained.

As a way of dealing with this, banks then have to go with the flow.

Thung observed that Singapore is becoming an attractive alternative for investments amongst high net worth individuals (HNWI) from mainland China. “Some banks are looking to establish family offices to serve Chinese entrepreneurs; as a sizeable proportion will look to transfer their wealth to the next generation within the next five to ten years,” he added.

Also read: Chinese private banks lead Asia's wealth management business

DBS joined this trend with its acquisition of ANZ’s wealth management business, which meant it took over a business in five markets including Hong Kong, Mainland China, Taiwan, and Indonesia. Its assets reportedly ballooned to $206b after the deal. UOB also mentioned in its annual report how Hong Kong is a wealth management centre in Asia and continued to be its key market from which it served clients’ needs.

Guha noted that OCBC also eyes doubling its wealth management staff headcount in Hong Kong to cater to China’s rich. “It has been also been mentioned that the bank wants to expand onshore China to focus on wealth management."

Singapore banks are not only attempting to tap into the ultra-rich of one nation. Thung noted that OCBC has received the licence to set up a subsidiary in Luxembourg to serve European customers in addition to its London office. DBS also aims to grow Asia private banking headcount up to 20%.

Banks are also seeking to ride on and bank on ongoing technological disruption in the financial sector. UOB announced a partnership with fintech companies like Pintec and Invessence to launch digital services and robo advisory (UTrade Robo).

Guha also observed the “continuing investment” in back-office systems such as client advisor and relationship management tools, robotics and automation, as well as in compliance systems, in particular on transaction surveillance and anti-money laundering or combating the financing of terrorist activities to address increased focus by regulators.

“Overall, wealth managers and banks should see benefits from these investments in technology infrastructure, both in terms of attractiveness of the offerings and enhanced client experience, and also through avoiding expensive fines or remediation work in the compliance areas,” the analyst added.

The investment in technology does not mean banks and wealth managers are ‘breaking the buck’ in designing, implementing, and executing such strategies, Thung said. “They remain mindful of what returns they can get from such investments and are focusing on projects that have clear revenue-enhancing benefits or well-defined costs paybacks.”