The massive failure of derivatives that wiped out investors' wealth and helped trigger a global recession still casts a long shadow over the worldwide banking industry.

But in China, where the financial sector remained relatively solid amid the turmoil, the scenario is different, so Chinese banks are now stepping into the premium wealth management market as parent companies of foreign banks grapple with the global meltdown.

China Merchants Bank (CMB), the country's sixth-largest lender by assets, plans to open at least five new private banking business centers this year in addition to its current eight branches, which will give it a presence in nearly all advanced regions across the country.

High-end customers

It was one of the first Chinese lenders to foray into the high-end wealth management sector by offering comprehensive banking and financial planning services to individual customers who have assets of at least 10 million yuan.

The bank saw its high net worth consumer banking business grow rapidly after it was launched in August 2007. It had total assets of 129.9 billion yuan under management for 6,398 clients by the end of 2008, a 33.51 percent increase in funds from a year earlier.

"The strong momentum is likely to continue this year in spite of the global financial storm, so we are stepping up efforts to open new branches to bring all customers under our service net," said Wang Jing, executive deputy manager of CMB's private banking department.

Other Chinese lenders plan to follow suit. Bank of Communications, which has opened five private banking branches in major Chinese cities including Beijing and Shanghai, announced it will expand into more provinces and cities this year with outlets in Jiangsu, Henan, Hubei, Shangxi and Qingdao.

The Agricultural Bank of China and Shanghai Pudong Development Bank are also considering entry into the new market in the near future.

Industry insiders said the ongoing financial crisis offers a window of opportunity for Chinese banks to develop their private banking business in the next two years, as investor enthusiasm fades for overseas high-yield, but risky, investment products.

"More and more Chinese investors are showing interest in domestic wealth management products as China has gained recognition as one of the safest markets in the world," said Ye Diqi, vice-governor of the Bank of Communications.

The global financial crisis has made customers realize the importance of diversifying their investment exposure and look more to medium and long-term returns, he said. Wealth management products from Chinese banks are among the new options.

Foreign banks

The spate of bad news in the Western financial world has tainted foreign banks' reputation as safe and credible trustees for investments. Stories about foreign banks enticing wealthy Chinese investors to sink their savings into high-risk products that resulted in huge losses have recently become headlines of many Chinese newspapers.

According to a survey by Bain Consulting Co, Chinese high net worth clients still prefer foreign or joint shareholding banks for wealth management, but 70 percent of respondents said they are now more prudent about foreign banks.

The survey also showed that most Chinese investors tend to choose fixed-income investment products with high liquidity, while 80 percent of the country's high net worth individuals will consider diversifying investment portfolios this year.

"The high net worth client segment in China is usually biased toward low-risk and became even more conservative in the current financial storm," said Wang Jing of CMB.

"It is essential for us to understand our clients' real needs and design suitable investment portfolios, " Wang said.

CMB's individual high net worth products range from cash management, equity and fixed income investments to structural products that cater to different investment objectives and appetites for risk, according to Wang.

Behind the rush to the private banking sector by Chinese banks is the rapid accumulation of wealth by some Chinese individuals. According to a report jointly released by CMB and Bain Consulting, the number of people with assets above 10 million yuan suitable for investment in China reached 300,000 by the end of 2008, who together have 8.8 trillion yuan, equal to 29 percent of China's total GDP last year.

The report estimates that the number of multimillionaires in the country could increase 6 percent in 2009 to 320,000 with a total wealth exceeding 9 trillion yuan.

But analysts said foreign banks, which have ample experience in wealth management, will not vacate the market to their Chinese peers despite troubles at home.

To retain customers, many foreign banks recently slashed their wealth management consulting fees from their peak of 10 percent in 2008 to 2 to 3 percent of assets now under management.

Standard Chartered Bank announced in May that its private banking arm plans to recruit some 100 customer relations managers around the world in the next 12 months.

But most foreign banks are adopting a wait-and-see attitude on expanding private banking business in China as many are still traumatized from the global meltdown.

"We are not likely to launch new wealth management products this year," Ivan Leung, chief investment strategist for JP Morgan Private Bank in Hong Kong, told the 21 Century Business Herald.

(China Daily 06/22/2009 page4)