BEIJING - As the
countdown starts toward December 2006, when
China's banking market will be fully liberalized
under the country's commitment to the World Trade
Organization (WTO), and foreign institutions will
be able to serve individual customers with
yuan-denominated accounts, the debates have been
endless: can Chinese banks stand up to their
foreign rivals, or not?
The Boston
Consulting Group (BCG) said in a recent report
that it expects foreign banks to create tougher
competition in the wealth
management market, as they
enter the retail market and attempt to cherry-pick
the most attractive customers. "Unless Chinese
banks can respond, there is a real and significant
threat that many wealthy customers will be [lured]
away by the highly-evolved products and services
that foreign banks can offer," said the report.
Many foreign banks are preparing
themselves to enter China and pursue the
attractive high-end retail market. It is widely
known that they have been hiring away experienced
staffers from local banks and recruiting heavily
in the run-up to market liberalization. Some
international banks have already relocated their
regional head offices from Singapore to Hong Kong. "Almost every
foreign bank is targeting China. They have heavily
invested in market research for the past two to
three years," said one private banking
professional from a foreign bank.
Branch
set-up requirements for foreign banks are still
onerous - for instance in the form of capital
requirements and license applications - and in
China, each outlet requires a separate approval.
But wealth management is a market that foreign
banks can access more easily than the mass retail
market for several reasons: high-end customers can
be served from just a few outlets; a select few,
highly attractive customers can be targeted;
capital requirements and investments are lower;
and existing know-how, systems and experience can
be leveraged, the BCG report said.
It said
foreign banks have many competitive advantages
over local banks in building wealth management
businesses, including trusted, prestigious,
internationally recognized brand names; experience
and expertise in a broader range of investment
products and advisory models; established
operational models, particularly processes,
systems and policies; and proven capabilities to
attract, train and retain the best talent.
Standard Chartered Bank has offered an "SC
Priority Banking" card for customers with
quarterly average account balances of US$100,000
or equivalent, while Citibank has launched its
"Citigold" product for customers with monthly
average account balances of $100,000 or equivalent
in China.
Even so, the BCG also expects
the Chinese banks to respond to this threat and to
exploit their own advantages. First, they have
strong, existing customer franchises that are rich
in high net-worth customers, although they will
have to work to mine these resources. Second,
Chinese banks have an extensive service network
that could enhance accessibility and convenience
for customers. Thirdly, the BCG expects Chinese
banks to "leverage their deeper understanding of
the Chinese market and customer needs at least
until the foreign players catch up." Finally,
Chinese banks have relationship managers that have
strong connections with local customers.
"It will be very interesting to see how
this highly contested and sought-after market
develops," it said in the report.
