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China Banking and Insurance Regulatory Commission, revealed that foreign entities control less than 2% of banking assets and less than 6% of the insurance market.
Still a struggle
But getting strong profits will be far from automatic, as Chinese financial institutions have built up strong positions in many of these markets, says Hardy and Huang.
Vanguard Group can attest to this struggle. The $7t American investment management group stunned its staff in China with its decision to halt pursuit for a license last March. Instead, it is instead focusing on developing its robo-advisory joint venture with local fintech giant Ant Group, according to an announcement.
But Vanguard is still treated as an exception, not a norm, with global undeterred with the prospect of competition with local players—especially when the potential profits could help push up their dwindling earnings that have plagued them for the past decade.
Pre-COVID, HSBC announced its third restructuring in a decade as it fought to find means to push up profits (FY2019 results were 53% lower than in FY2018). And whilst Citigroup and Goldman Sachs’ earnings in 2020 beat analysts’ expectations at the time, they reflected challenges faced by other global banks as profits spiralled lower than in past years.
Even local lenders and financial firms from the very market that these foreign banks are pinning their hopes on have faced turbulent times recently. According to media reports, onshore defaults have swelled to exceed $15.5b for four straight years, and is on track for another record annual high in 2021. This will surely be a challenge for local banks’ asset qualities.
On the upside, analysts have predicted bright spots on the horizon for China’s banking industry in the near term. In a report, Fitch Ratings excluded China from emerging markets in Asia with a “challenging” operating environment in the future. The ratings agency also said that the country is amongst those who will have relative economic stability, alongside Malaysia, South Korea and Taiwan.
The country’s recent tightening of regulations for non-bank financial firms could also play to both local and foreign banks’ advantage. Regulators want to create an equal environment for banks and nonbank financial institutions alike, S&P Global Ratings Fern Wang noted in a report.
ASIA PACIFIC Citi to leave consumer banking business in at least 10 Asia Pacific markets
Citibank (Photo: Mikel Parera)
Is the age of universal banking coming to a close? For Citi, it’s the end of an era, at least. On 15 April, the banking group announced that they are saying adieu to their consumer banking business in 10 markets across APAC, only notably retaining retail operations in Singapore and Hong Kong.
Instead, Citi is doubling down on its wealth management, institutional banking, and corporate banking businesses, which they said presents “the greatest scale and growth potential.” Just a couple of days later, Citi APAC unveiled plans to add 2,300 professionals in their headcount-- 1,100 of which will be relationship managers and private bankers. It has already hired close to 650 wealth professionals as of Mid-May, including at least 130 professional managers and private bankers.
The move underscores how Citi, and other global lenders, are banking on rich Asians to help drive up their profit margins and investor returns in the near future.
If Citigroup thinks that, they really couldn’t be blamed: numbers are encouraging, with the bank recording over $20b in net new money inflows across the region in 2020, marking a record year for the franchise. The bank’s latest strategy outlined a lofty ambition to have $150b in assets under management across its APAC wealth franchise in four years. Of this, $120b are expected to come from the highnet-worth segment.
Just from the first quarter of 2021 alone, the group’s APAC segment has added over US$5b in net new money, marking one of the strongest quarters for the bank on record.
Speaking to Asian Banking & Finance, Citi APAC CEO Peter Babej said that the plans are part of Citi’s strategy to allocate resources where it could drive profitable growth for the group as a whole.
“The sharpened strategy that Jane announced will redouble Citi’s focus on areas where our global network delivers the highest value to clients. This includes our marketleading wealth and institutional franchises in Asia,” Babej said.
“We will invest to grow the integrated wealth, payments and banking businesses in our Hong Kong and Singapore hubs. We will also continue expanding our institutional presence, delivering Citi’s unique global capabilities across all our regional markets. Asia is critical to our firm’s strategy, and we will allocate resources to drive profitable growth for our franchise,” he added.
CEO Jane Fraser admitted in the announcement that Citigroup doesn’t have the scale they need to compete in these markets.
“We believe our capital, investment dollars and other resources are better deployed against higher returning opportunities in wealth management and our institutional businesses in Asia,” she added.
The announcement also came just a day after Citi APAC appointed two new co-heads of Citi Global Wealth in APAC—signalling the group’s pivot to focusing much more on its wealth businesses in Asia Pacific.
Under its wealth business in the region, the bank reportedly has US$300b in assets under management (AUM), making Citi one of APAC’s top three wealth managers in 2020.
Earlier in April, Citi appointed Kartik Mani as head of consumer banking in Asia, three months after announcing the exit of former head Gonzalo Lucchetti.
