China capital opening is wealth manager 'game changer,' DBS says

[SINGAPORE] An opening of China's capital account is set to provide one of the biggest opportunities for wealth managers as millions of rich Chinese gain access to global markets, according to DBS Group Holdings Ltd.

Recent moves to allow more overseas use of the Chinese yuan, also known as the renminbi, are among the signals that wealth managers need to prepare for when rich Chinese can freely transfer their money in and out of the country, said Tan Su Shan, DBS's head of consumer banking and wealth management. China has more millionaire households than any country except the US, according to the Boston Consulting Group.

"The process has started, in terms of getting ready for the internationalization of the renminbi, and sooner or later the opening up of the capital account," Ms Tan, 47, said in an interview in Singapore last week. "That is a major game changer for us, or anyone doing wealth management." The equities collapse that drove the Shanghai Composite Index to a more than six-month low on Monday, combined with a depreciating currency, has bolstered wealthy Chinese clients' appetite to diversify away from domestic investments, according to Ms Tan.

As it readies for an eventual lifting of capital controls, DBS, Southeast Asia's largest lender, is studying ways to expand in China, said Ms Tan. With 28 branches on the Chinese mainland, DBS is open to the idea of more partnerships with Chinese institutions to give it greater access to the market, she added.

"It's a difficult market to penetrate if you just want to use branches, as it's going to be costly," Ms Tan said. "In these markets where we are not big and there are bigger players domestically, you've got to be open to partnership." China Partnership DBS already has an agreement with Postal Savings Bank of China Co and another five local firms to set up China Post Consumer Finance Co Ltd on the mainland, a venture that will mainly focus on consumer financial services.

Beijing's restrictions on capital flows and currency usage mean wealthy individuals on the mainland have limited options to invest in assets beyond the borders. If those curbs are lifted, they would be able more easily to use banks and wealth managers inside China for overseas markets.

China has 4 million millionaire households, more than any country other than the US, according to the Boston Consulting Group. It added 1 million new millionaire households last year, BCG estimates.

Earlier this month, China pledged to give market forces a greater role in determining the exchange rate when it announced a surprise devaluation of the yuan, seen as another step toward freeing up the currency.

Acquisitions possible

DBS's wealth business had S$140.5 billion of assets under management as of June, up 6 per cent from December and boosted by the US$220 million acquisition last October of Societe Generale SA's Asian wealth management business.

According to the Asian Private Banker's 2014 survey, DBS ranked number eight for size of assets under management in the Asian region, the largest of any Asia-based institution but behind wealth management giants such as UBS Group AG and Citigroup Inc.

Ms Tan said DBS won't rule out further acquisitions, if they fit with the bank's Asia-focused strategy.

"It's going to be what we know how to operate and run, and integrate into our business," she said. "It's got to make sense on the pricing, and it's going to be part of our strategic priority: wealth management run in Asia." DBS was among the firms bidding for Royal Bank of Scotland Group Plc's private banking arm, Coutts International, people with knowledge of the matter said in March, though it lost out to Switzerland's Union Bancaire Privee.

Asian 'headwinds'

DBS groups wealth management together with consumer banking. The combined operation posted a 28 per cent gain in revenue to a record S$1.76 billion during the first six months of the year, or just over a third of the DBS total. Part of the bank's strategy is to diversify away from the core Singapore market, where the bank has about 4 million customers out of a total population of 5.5 million.

Besides Hong Kong, Taiwan, mainland China and Singapore, DBS has private-bank offices in Indonesia and India.

Despite the growth plans, MsTan said DBS is seeing some "headwinds" as a result of the recent slowdown in many Asian economies, including China's, and the sharp drop in commodity prices. Indonesia, Southeast Asia's largest economy, has been especially vulnerable to a drop in exports stemming from the commodity price rout.

Nevertheless, Ms Tan said she remains optimistic about the wealth business in the Association of Southeast Asian countries, a grouping which includes Indonesia, Malaysia and Thailand.

"I wouldn't rule out Asean just yet," Ms Tan said, when asked about the best growth opportunities for the DBS wealth management business. "But Greater China would be my answer, we are very focused on it."

BLOOMBERG