- An exclusive interview with Zhang Changgong, GM of Private Banking Department of Industrial Bank
Date: July 10, 2012 Source: National Business Daily
The sun in Shanghai is scorching hot just like the private banking business of Industrial Bank (IB) which is developing in full swing. Nonetheless, in the opinion of Zhang Changgong, GM of Private Banking Department of IB, asset management still dominate s the field of private banking due to the current national conditions, and we still have a long way to go before realizing real wealth management.
“When mentioning private banking, all will associate it with a range of factors. For instance, it only serves the wealthy people, only sells products with high returns, and mainly has credit asset sources. All these are misunderstandings to the Chinese private banking.” GM Zhang Changgong of Private Banking Department of IB accepted the special interview of National Business Daily in the meeting room located at the core section of Lujiazui. He pointed out that private banking could provide not only such conventional businesses as settlement and remittance and exchange, but also a package of services such as wealth consultant and health consultation.
Most private banking businesses are deviating.
When discussing the present situation of private banking in China , GM Zhang exclaimed: deriving from conventional retail banking, the domestic private banking still remains at the preliminary stage, but most get deviated.
“When mentioning private banking, all will associate it with a range of factors. For instance, it only serves the wealthy people, sells products with high returns only, and mainly has credit asset sources,” said Zhang Changgong.
He pointed out that all these are misunderstandings to the Chinese private banking that could provide not only such conventional businesses as settlement and remittance and exchange, but also a package of services such as wealth consultant and health consultation. “Running through the entire banking business, private banking is the real integrated banking, and customers may take private banking as their own chamberlain,” Zhang Changgong told the reporter.
Previously, some principals of financial institutions pointed out at the “2012 Lujiazui Forum” that most financial institutions were actually engaged in “asset management” when it was not the time for Shanghai to launch “wealth management”.
In the opinion of Zhang Changgong, the objects of asset management are limited to financial assets. Nonetheless, wealth management boasts a significantly greater scope than asset management. Not only the financial assets but also non-financial assets could be managed.
“UBS is famous for its superior private banking services. The UBS model consists of three systems: investment banking, asset management and private banking. Specifically, the private banking runs through the entire banking business. Customers not merely need wealth management products, but financing services sometimes. The real wealth management can be realized in this way,” said Zhang Changgong.
He believed that the current stage of economic development resulted in that the private banking at home remained at the stage of “asset management” all along.
“Based on investigation, we divide customers into three stages: creating wealth, maintaining wealth and enjoying wealth. In the stage of creating wealth, customers are full of confidence in their personal investment management capability, and they are characterized by rich personal and familial color but lack of trust in professionals. In the stage of maintaining wealth, the personal and familial color in their wealth management concept fade gradually, and they turn to professional financial institutions and teams for wealth management based on entrustment while their demands for cross-border allocation of assets and diversified allocation grow. And in the stage of enjoying wealth, they mainly depend on professional financial institutions and teams for wealth management, and their risk preferences tend to be diversified. The high-net-worth individuals (HNWIs) are only 39 years old on average in China. Most of them remain at the stage of creating wealth, and only a few enter the stages of maintaining wealth and enjoying wealth. Their demands for wealth management of banks still need to be cultivated for a while.” Zhang Changgong analyzed.
“However, based on the overseas experience, China's economy will enter a stable growth period as time goes on. When HNWIs go through the wealth-creating stage, they will be in the transition towards the stages of maintaining and enjoying wealth gradually. Then, their dependency on the professional services of banks will keep increasing.” said Zhang Changgong.
Compete for customers and talents
Customers are always the “strategic resources” that no bank can afford to lose, and it is even more so for private banking.
Nonetheless, apart from competition from inside the industry, the Private Banking Department has to balance the interest relationship between the Head Office and all branches. Generally, those HNWIs that some branches are not capable to serve should be shifted to the Head Office. However, after such customers are handed over to the Head Office, they are counted into the performance of the Head Office. Considering their interests, in general, branches are not enthusiastic in handing over customers.
“High-end customers are usually dispersed in the service networks of branches and sub-branches. If the Head Office takes these customers away at no expense, it's natural that the branches will be un willing to give up such customers. As a result, IB introduces the two-way account-keeping model, ” GM Zhang Changgong of the Private Banking Department of IB introduced. “The results brought about by an explored customer are calculated separately. The fruits of branches are returned to them, so their interests are not affected. The service fruits of the Head Office are ascribed to the Head Office. After defining the interests of the Head Office and branches, we are not worried about that any branch will hide customers,” Zhang Changgong told the reporter of the National Business Daily .
“Of the 2.7 million HNWIs, IB only accounts for a small proportion at present. Even if the Head Office carries out direct operation, the possibility to have a competition for customer inside the bank is very small. Why not compet ing for the remaining market?” said Zhang Changgong.
Meanwhile, the private banking in Mainland China started late, so the relevant talents are in deficiency. The customer managers of private banking are still in the stage of “getting to know what the rich people favor”. It becomes an important support for the growth of private banking to attract outstanding talents and better meet the demands of customers.
As is shown in the Chinese Luxury Consumer White Paper released by IB, the wealth sources of the 2.7 million HNWIs are mainly from the investment returns and sales of ownerships to enterprises. 70% of them drink, and among them, a half of them favor red wine. 2/3 of them have the habit of making collection, and the prevalent collections include watch, ancient calligraphy and painting works, and wine. 85% of them plan to send their children to study abroad.
This means that each private banking customer manager must know well about financial business, wine appreciation, curio appreciation, tax laws of different countries, and education levels of different countries. Zhang Changgong believes that the building of private banking team should be distinguished from the conventional retailing department. “Besides financial knowledge, policies, laws and regulations, the training specific for private banking should also targets at a broad scope of knowledge .”