Shake-up looms in Singapore banking, wealth managers warn

August 28, 2013 3:54 pm

Shake-up looms in Singapore banking, wealth managers warn

By Jeremy Grant in Singapore

Intense competition, a tendency for wealthy Asians to use multiple private bankers and high staff costs are likely to force consolidation in the wealth management business in Singapore and could push operators out of business, top private bankers have warned. Signs of competitive strain in one of Asia’s biggest wealth management hubs stand in contrast to an image of rising wealth as the number of multimillionaires grows faster in the region than anywhere else.Bankers say that, even as assets under management are growing fast in Singapore – narrowing the gap with Switzerland – that is not translating into profits for many banks that have rushed to Singapore to tap growing wealth in southeast Asia.

“Many foreign banks came in without giving enough thought about the sustainability of the business, the regulatory environment and competitiveness from established players as well as local banks aspiring to be top-end wealth managers. I think the whole proposition is under tremendous test,” said Deepak Sharma, chairman of Citi Private bank and co-chair of the Singapore Private Banking Industry Group.

Private bankers say the cost/income ratio in the business in Singapore is higher than in Europe, as an influx of banks chasing business has collided with a shortage of qualified “relationship managers” to woo clients.

Assets under management grew by 17 per cent in Asia last year, double the rate for North America or western Europe, according to consultancy McKinsey.

However, profit margins among private banks in Asia were the lowest of any region except for India.

With Europe in the doldrums Singapore and Hong Kong offer wealth managers one of the few avenues for growth, as the number of multimillionaires created outstrips other regions. Yet bankers say margins are being squeezed as banks price products and services keenly to buy market share.

“My own view is that in the next 18-24 months you’ll see either people quitting [the business] or there will be consolidation,” said Edmund Koh, chief executive of wealth management for southeast Asia at UBS. “It just doesn’t make sense unless you have scale. It’s too expensive.”

Smaller private banks that have set up offices in Singapore in the past three years include Bordier & Cie and Gonet & Cie. Another, Union Bancaire Privée, is expected to get a full banking licence within weeks. Julius Baer is in the midst of integrating the wealth management business of Merrill Lynch, acquired a year ago and including a substantial Singapore operation.

The difficulties facing some wealth managers in Singapore mirror a tougher environment globally for the business. “Despite capital market performance driving attractive growth in assets under management top line revenue growth remains subdued,” McKinsey said.

However, some industry experts say that the smaller operators in Singapore are likely to survive consolidation pressure because they have lower cost bases.