3 July 2014
High staff costs, compliance requirements and increased competition are key challenges for private banks in Hong Kong, according to a new KPMG report.
Titled Spotlight on Hong Kong’s Private Banking Sector, the report features in-depth insights from a number of private banks in Hong Kong. Key priorities include optimizing their cost structures and business strategies, in order to tackle market competition and increased regulatory compliance costs.
The report highlights the challenges of high cost income ratios, which tend to range from 70 percent upwards, placing pressure on banks’ cost structures. A shortage of top talent is driving up staffing costs, while increased regulatory expenses have also impacted profits, the report notes.
Growth remains a top priority, with banks adding net-new assets to their portfolios in recent years. A number of banks indicated their preference for more focused, selective growth, versus aggressive expansion, according to the report. Several said they anticipate significant growth in two to three years, concentrated within Hong Kong and serving North East Asian clients.
Isabel Zisselsberger, Partner, KPMG China, says: “Growth is a key focus, because most multinational banks still see Asia as a high promise market, particularly when compared to North America or Europe. The challenge, in part, is where the growth will come from. The banks therefore need to deepen those client relationships.”
Additionally, following several years of acquisitions, the banks need to determine which clients are profitable in order to either increase their share of wallet or exit those unprofitable relationships. Zisselsberger explains: “At present, a number of banks have limited analytical capability to capture information and understand their clients better, to supplement the role that has been a primary accountability of personal relationship managers. Data analytics holds vast potential to bolster the quantity and quality of data to anticipate client needs and service them better.”
Paul McSheaffrey, Partner and Head of Hong Kong Banking, KPMG China, adds: “Banks are likely to incur significant costs to upgrade their current compliance measures, including technology, processes and data collection. This is in response to more intense regulatory enforcement. They will therefore need to make strategic changes in the coming years in order to improve their cost structures. They should also prioritize initiatives to remove costs and complexity from their operations.”
M&A activity meanwhile is expected to continue, resulting in a changing landscape of departing players and new entrants.
McSheaffrey concludes: “We anticipate some consolidation among smaller players in the coming years, partly because of insufficient scale to tackle rising costs. Hong Kong will remain highly competitive in light of the growing ranks of banks from Mainland China that are now ramping up their local presence. In order to differentiate themselves, knowing your customer better and anticipating their needs first will create a competitive edge.”
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