Conditions ripen in Asia for onshore private banking

The environment is becoming ever more conducive for onshore private banking in Asia, in light of greater regional stability and growing constraints on offshore wealth management, say industry experts – and more global and local players are looking to take advantage.

He is among the rising number of market participants – among them, Jean-Louis Nakamura, Asia-Pacific chief investment officer of Swiss firm Lombard Odier – who believe conditions are ripening for onshore private banking to take off.

Thirty years ago, one of the biggest concerns for wealthy Asians was the safety of their assets, and many countries in the region were seen as politically and economically turbulent, noted Honig. Moreover, regional currencies were relatively unstable, which is why international private banking emerged, he added.  

Today, the situation has changed significantly, argued Honig. “People are no longer as worried about currencies as they were before and there is much more political stability in the region.”

Some might disagree, pointing to the growing tensions between China and the US of late, uncertainty over American policy under Trump, and sabre rattling by North Korea, among other things.

Change in approach

Nonetheless, the next generation of wealthy will be much more inclined to keep their financial assets locally, argued Honig, a shift that will trigger changes in onshore banking that will have consequences for all service providers, including insurance.

The fact that the future wealthy – especially in China – are younger will have a major impact.

While the average millionaire in Asia is aged between 60 and 70, in China he or she is around 40, according to sources. With the a big transfer of inter-generational wealth looming, the next generation is expected to display different attitudes to wealth creation, investing, using technology to access various banking services and so on.

Another big factor driving interest in onshore private banking is the fact that keeping money offshore is not as straightforward as in the past, due to a greater focus on financial transparency by regulators.

So far, the private banking industry in Asia has largely centred on offshore operations in Singapore and Hong Kong. But tighter compliance and regulatory requirements, driven by a global crackdown on money laundering and tax avoidance, are levelling the playing field for onshore banking.

With international Common Reporting Standards kicking in – and greater tax transparency expected to accompany them – there is less incentive for wealthy clients to park money offshore.

Opportunity knocks

All this represents a growing opportunity for banks operating in markets such as Indonesia and Thailand, said Julia Leong, Singapore-based partner and private banking lead at consultancy PwC.

“They are also keen to learn how the private banking business works,” she said. “In the past, wealthy Indonesians used to park their wealth in Hong Kong and Singapore, but now, with more stringent disclosure norms and tax transparency, there is potentially space for local banks and foreign banks that have local operations to capture and grow this space.”

However, building and maintaining an onshore wealth business can be extremely expensive, which is why some smaller banks might choose to partner with local entities.

For instance, since 2014 Lombard Odier has been busy inking tie-ups with entities in China, Japan, Korea, Thailand and the Philippines, in an effort to cater to onshore high-net-worth individuals (HNWIs).

Meanwhile, larger private banks have the resources to build their own local presences. Last year Credit Suisse appointed an onshore private banking chief for in China and established a desk in Thailand to cater to wealthy local clients.

Asian groups have also been joining the bandwagon. In May Singapore’s second largest lender, OCBC, launched an Indonesian private banking unit as it continued efforts to expand its presence in the region.

A difficult task

Of course, it will pay to be selective about the markets being targeted – and success will not come easily. Some international banks have already tried unsuccessfully to build local Asian wealth businesses. For example, firms such as EFG, Morgan Stanley, Sarasin and UBS all had onshore Indian wealth businesses in the past and sold them.

Even offshore players have thrown in the towel in the region in the past year, among them ABN Amro, Barclays and French bank CIC. This has shown how tough the Asian market is to crack, despite having riches seemingly ripe for the plucking.

Ultimately, onshore private banking is a very long game and building a strong local presence could easily take 10 years or  more. Staying power will be necessary – and a whole lot more besides.