Bank of Singapore Sees Pressure on Asia's Small Wealth FirmsChanyaporn Chanjaroen
Asia managers need at least $20 billion of assets to survive
Overseas property lending a speciality for Bank of Singapore
Bank of Singapore Ltd., the private banking arm of Southeast Asia’s second-largest lender, sees further consolidation in the Asian wealth management sector, as business gravitates to the larger firms and smaller players find it harder to offer the range of services demanded by the region’s rich.
Though the business of managing money for Asia’s rich is booming as wealth in the region has expanded, only large banks offering a variety of global products are likely to prosper, according to Bahren Shaari, Bank of Singapore’s chief executive.
"If you don’t reach a certain size, if you don’t differentiate, if you don’t have the products and the solutions, then you will be forced to consolidate the business," Shaari, 53, said in an interview last week. He said wealth managers with less than $20 billion under management in Asia may find it hard to sustain their operations.
Bank of Singapore, the private banking unit of Oversea-Chinese Banking Corp., ranked 11th among Asian wealth managers in 2014 in terms of assets under management, according to data by Asian Private Banker. Only DBS Group Holdings Ltd. was larger among the Asian regional banks in an industry dominated by the long-established wealth units of Swiss and U.S. banks such as UBS Group AG, Citigroup Inc., and Credit Suisse Group AG.
Those three banks alone controlled 44 percent of the $1.6 trillion assets managed in Asia in 2014 by the region’s top 20 wealth managers, according to Asian Private Banker.
Other recent signals that the industry is consolidating include DBS’s purchase of the Asian wealth management unit of Societe Generale SA for $220 million in 2014, and Union Bancaire Privee’s acquisition in March of Coutts International, the non-U.K. wealth management business of Royal Bank of Scotland Group Plc.
Bank of Singapore gets most of its business from wealthy clients in Southeast Asia, Shaari said, though China has become the fastest-growing market. Its total assets under management stood at $54 billion in June, up 6 percent from the end of last year, while the number of relationship managers dealing with wealthy clients rose 5 percent to 330 during the same period.
Shaari said one of Bank of Singapore’s strengths is its use of its parent OCBC’s balance sheet to help wealthy Southeast Asian and Chinese clients purchase real estate in regional centers such as Singapore or international cities such as London. “At the end, it’s a question of capital, because property is more capital intensive. Not all the global banks have the kind of branches or network that we have,” Shaari said.
The traditional love of property investment among Asia’s rich has become even stronger after the global financial crisis, Shaari said.
Asian wealth managers also need to differentiate between the needs of the newer millionaires, especially in China, and the families in Southeast Asia and elsewhere that have held their wealth over longer periods, Shaari said.
“Indonesia has been exposed to private banking over the last 20-25 years or more. Actually the wealth is now moving toward the second generation and the next generation,” he said. As well as purchasing property overseas, Chinese clients are often seeking advice from their wealth managers on issues such as the education of their children, he added.
Shaari, a Singaporean, began his career in private banking as an Indonesia relationship manager at American Express Co., helped by his fluency in Bahasa Indonesia. He spent more than 12 years at UBS before moving to ING Groep NV’s Asian private bank in 2009, shortly before it was bought by OCBC.
Assets held by high net worth individuals in the Asia-Pacific region, defined as those with at least $1 million for investments, are expected to exceed $16.2 trillion this year, rising from $15.8 trillion in 2014, according to a report by Cap Gemini SA and RBC Wealth Management. Asia-Pacific recorded the fastest growth in terms of new millionaires and the amount of money they own, the study said.
The consolidation trend among wealth managers is also taking place in Europe, said a study by the consultants McKinsey & Co. published earlier this month. New rules aimed at improving consumer protection led to higher costs, and one in six of the private banks surveyed posted a loss last year. McKinsey said that European private banks need to have almost 10 billion euros ($11.3 billion) under management in any one of their booking centers to make the operation profitable.
Bank of Singapore itself was formed out of an earlier consolidation in the industry. The bank was launched in 2010, the year after OCBC purchased ING’s Asia wealth management business for $1.45 billion and combined it with its own private banking operation.
The bank plans to grow assets under management, especially in Greater China using OCBC’s network, though it also remains open to further acquisitions, Shaari said. “If there are banks that want to consolidate, definitely we’d be interested,” he said.