There is a traditional saying in Mandarin Chinese: “The planning depends on people, the result depends on God.” Planning, particularly of the five year variety, is something China is renowned for. And Ma Weihua, chairman of China Merchants Bank (CMB), is no exception, although like many Chinese, he is sometimes surprised by the speed with which his blueprints have been realised.
Following a massive shift from corporate to retail banking (now representing 40 per cent of profits) and small to medium-sized transactions in order to boost fee-based income, Mr Ma’s ‘second strategic transformation’ aims to optimise the bank’s structure, while lowering costs to minimise risk and provide increased returns for shareholders.
Despite commentators’ optimistic predictions for Chinese growth, the cautiously ambitious Mr Ma sees this as a time for consolidation rather than explosive expansion, hindered both by the Chinese capital market’s vulnerability and increased capital adequacy requirements of international regulators. “In the next five years, we will not expand rapidly in terms of the size of our assets, due to these restrictions,” says Mr Ma, whose bank recently acquired the 48-branch Wing Lung network in neighbouring Hong Kong and does not rule out further acquisitions, particularly in the international market. “Our main target is to optimise our structure.”
However, within this stabilisation phase, the shift in emphasis towards retail and private banking, attractive due to higher shares of fee-based income, will continue. When Mr Ma launched a private banking offering three years ago, 3,000 of his retail customers took up the service. Today there are more than 12,500 clients using the wealth management expertise of China’s sixth largest bank, formed 23 years ago in the vibrant Southern city of Shenzen.
The bank’s high net worth customers – those with more than RMB10m ($1.5m) to invest – have assets of RMB250bn ($38bn) lodged with CMB across 20 private banking centres, clustered mainly in the economically developed regions of the Yangtze River Delta, Pearl River Delta and Bohai Rim.
This business has just turned profitable for CMB, named as ‘Best Private Bank in China’ in PWM’s 2010 awards, and the management is expecting 40 per cent growth in customer numbers for several years to come. “In the future, private banking is one of the most important fields for us to develop, because China’s wealth keeps accumulating and we are now the third largest market in the world,” claims Mr Ma.
While high net worth individuals represent just 0.04 per cent of the retail bank’s customers, they hold 13 per cent of total assets. In its latest World Wealth Report, Merrill Lynch estimates there are 477,000 people currently within this segment in China, with numbers increasing more than 30 per cent year on year. One of the key challenges in tapping this potential lies in recruitment, with Chinese banks looking both domestically and abroad for wealth management talent. “A large number of highly professional, overseas consultants are available from Taiwan,” says Mr Ma. “But we also train and educate our own people.”
There is a contrast emerging from five years ago, with Chinese graduates increasingly preferring to work for Chinese-owned rather than overseas banks. “And those already working in foreign institutions are seeing opportunities in Chinese banks,” says Mr Ma, who leads a 43,000 strong workforce. “If we look at Chinese graduates on Wall Street, 10 per cent of them are coming back annually.”
The plan for the bank as a whole is to keep employee numbers stable, while increasing efficiencies, but the private banking sector is earmarked for significant growth. Numbers of advisers are doubling annually, currently standing at more than 200, with each responsible for 30-50 private clients. Advisers are required to study a course and sit exams administered by the Hong Kong Securities Institute.
“The market in China is just three to five years old, so we are still beginners compared to mature and sophisticated markets. We must explore new models, while concentrating on satisfying customer needs as effectively as possible.”
Currently, this is done through offering different product categories, depending on the risk appetite identified in the customer. Clients in the lowest risk bracket are introduced to what Mr Ma calls “stable products with a stable income”. Middle and higher risk customers are typically offered private equity investments and other alternative strategies sourced from overseas managers.
But the lack of instruments currently available to portfolio managers can be an irritation. “We are facing some challenges,” admits an almost inscrutable Mr Ma, a former railway worker and, as a Northerner, an unusual figure in his bank’s Southern-born elite. “China’s financial market is not so sophisticated,” making it difficult to launch the sort of derivative based high-risk, high return products available in some private banking strongholds.
