China’s private banks, led by CMB and ICBC, will soon surpass rivals such as UBS and Citigroup in assets under management (AUM) in Asia, reflecting the nation’s rapid proliferation in personal wealth and its mushrooming network of high net worth individuals. AUMs at China’s private banks have surged an average 31% a year since 2012 vs. 11% at banks in other Asian nations. $27 trillion in personal wealth will fuel sales.
Private banking in China will get a coattail effect from its explosion in personal wealth, which is likely to keep proliferating despite growing at a nearly 20% annual clip during 2006-17. China is home to 185 trillion yuan ($27 trillion) in personal fortunes, according to CMB and Bain Consulting. Cash and deposits, at roughly 85 trillion yuan, are sufficient liquidity to fuel private banking sales over the next five years. Recent changes to China’s wealth management regulations will standardize both market practices and product design, which should attract more high-net-worth investors to private banking.
Individuals in China owned roughly 80 trillion yuan in real estate, securities and wealth management products in 2017. Another 20 trillion yuan was invested in overseas assets, life insurance and other products.
China’s high-net-worth investors set to surge
China’s ranks of high-net-worth individuals (HNWIs) will continue to surge after having grown at a 24% annualized clip since 2006. China’s personal wealth accumulation will keep adding to its base of onshore private banking clients. HNWIs could approach 2 million this year, vs. 1.87 million in 2017. This compares to about 500,000 individual clients at China’s 10 largest private banks. There were 16.1 million high net worth individuals in in 24 countries last year, according to Capgemini research.
There are as many as 1.58 million people in China worth 10 million to 50 million yuan each, based on a report complied by CMB and Bain Capital. This compares with 140,000 individuals worth 50 million to 100 million yuan each, and 150,000 people worth more than 100 million yuan.
China’s private banking assets to surpass rest of Asia
Private banking assets will keep growing faster in China than the rest of Asia due to the nation’s rapid accumulation of personal wealth, a surge in the number of its high-net-worth individuals, and its massive commercial-banking client base. China’s top 10 private banks – led by CMB – have boosted assets under management (AUMs) at a 31.1% annualized rate in 2012-17, based on BI’s analysis. This substantially outpaced the 10.9% growth for AUMs held by private banks elsewhere in Asia. China’s private banks depend largely on their bases of commercial banking clients, which covers most of mainland China’s population.
CMB is China’s leading private bank, with about 60,000 customers culled mostly from its more than 100 million retail customers. ICBC’s 70,000 private banking customers came from its 567 million retail clients.
CMB, private bank peers to close gap with UBS, Citigroup
Assets under management at CMB, ICBC and other Chinese private banks will soon close the gap with UBS, Citigroup and Credit Suisse. AUMs at CMB, ICBC and BOC – China’s top three – were $184-293 billion in 2017 vs. UBS’ $383 billion, Citigroup’s $256 billion, and Credit Suisse’s $202 billion, all in Asia. The three Chinese banks’ AUMs are likely to grow more than 20% a year, fueled by their massive retail client bases and China’s rapid accumulation of personal wealth. Their private banking AUMs grew at a 21.7-34.4% annualized pace 2013-17.
UBS’s AUMs outside of China grew by 11.8% a year during the same period, compared with 11.4% for Credit Suisse and 1.8% at Citigroup, according to Asian Private Banker. We estimate the top three Chinese banks’ Asian AUMs will surpass UBS and Credit Suisse within five years.
China private banking on track to oligopoly
China’s private banking business is likely to become an oligopoly, dominated by large commercial lenders with extensive retail and corporate client bases. China’s five largest private banks are all affiliates or divisions of its biggest lenders, accounting for more than 70% of its private banking assets in 2016. CICC’s private bank is the only non-commercial bank unit in the top 10 in AUMs. Big banks should have access to the accounts of almost all of China’s nearly 2 million high-net-worth individuals, implying plenty of growth potential.
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