Published March 27, 2008

Private banking in Asia to grow 9% a year: study

Oliver Wyman's 5-year forecast stems from market's untapped potential


PRIVATE banking in Asia will continue to grow at a steady 9 per cent annually over the next five years despite turbulence in the financial markets, according to a study by consulting firm Oliver Wyman.

That's because there is much untapped potential in Asia and growth in this region will remain strong, it said.

David Noble, Oliver Wyman head of financial services in Asia-Pacific, said: 'We are aware of the higher volatility of the Asian equity markets. If there is a global recession, clearly there will be short-term consequences.'

But there will not be a fundamental failure of the financial services business model, and long-term trends will remain intact, he said. 'We are confident that the growth potential for Asia will remain strong.'

In Asia, Oliver Wyman expects the annual growth rate over the next five years to be steady, at 9 per cent per year - similar to the rate of growth over the last five years.

Also, the industry will continue to benefit from untapped market potential as the global percentage of wealth being professionally managed or advised is still relatively low at 37 per cent. This compares with a global professional management rate of around 50 per cent.

'We expect to see Asia's wealth grow by another US$4 trillion over the next five years to reach US$13 trillion by 2012,' he said.

Globally, wealth held by high net worth individuals is expected to grow from US$50 trillion in 2007 to US$75 trillion by 2012, the report said.

From 2002 to 2007, the bull run in the stock markets and unprecedented wealth creation had driven a rapid 11 per cent year-on-year growth in assets of high net worth individuals.

However, due to a tougher market environment, annual growth is expected to slow somewhat to 9 per cent over the next five years.

Oliver Wyman's study also showed that an estimated 16 per cent of these assets was held offshore in 2007. In Asia, 9 per cent of this was held offshore, mainly in the two financial centres of Singapore and Hong Kong.

The trend is to keep more of these assets onshore in Europe due to rising regulatory pressure and increased focus on transparency. This is happening in Asia as well, with the increasing sophistication of emerging wealth markets and the availability of local investment opportunities.

With market conditions getting more difficult, private banks may move to a more European-style of management.

Having a European-style advisory model for some client segments may help institutionalise relationships with clients where there is greater emphasis on asset-based fees, discretionary portfolio management and financial planning, said Mr Noble.

'These sticky products will help establish a longer-term relationship and loyalty between the client and the bank. Also, the European onshore private banking model on average creates three to four times more value for shareholders than those in the traditional US broker/dealer model.'