Date
23 September 2017
McKinsey's Kenny Lam believes there will be a churn in the private banking business in Asia in the coming years. Photo: HKEJ
McKinsey's Kenny Lam believes there will be a churn in the private banking business in Asia in the coming years. Photo: HKEJ

Smaller private banks seen divesting Asia businesses

Fierce competition and low profit margins could prompt up to half a dozen multinational private banks to divest their Asian businesses in three to four years, according to an executive with consultancy firm McKinsey & Co. 

The offloaded assets could be under US$15 billion each, the Hong Kong Economic Journal quoted Kenny Lam, a managing director at McKinsey, as saying.

The divestments will come even as the wealth of billionaires in Asia has surged 18.7 percent over the past year.

The total number of billionaires in Asia is up 10 percent this year, with thirty-three out of 52 new billionaires in the region coming from China, according to recent wealth survey from UBS AG.

Lam said that for every US$100 of assets under management, only 15 to 20 US cents of profit can be made, heralding a very low profitability.

Given rising staff remuneration packages and heavier compliance costs, the cost to income ratios of private banks in general has risen to 70 to 80 percent, he said. In some cases, the ratio is over 100 percent, Lam pointed out.

Meanwhile, private banking products are becoming simpler, making it difficult to grow their revenues.

Only 10 to 15 larger multinational private banks may remain in the market, according to Lam. The business will increasingly need to be managed through local arms to bring down costs, he added.

– Contact us at [email protected]

VW/AC/RC

Freelance journalist

EJI Weekly Newsletter

Please click here to unsubscribe