Malaysia has its own strengths in private banking, and should capitalise on them.
We often hear of the rich and famous parking their money in Swiss bank accounts or others who make use of high-powered global banks based out of the financial hubs of Dubai, New York or London. Of late, due to the Eurozone crisis as well as a slowdown in North America, many have turned their eyes towards Asia.
According to the World Wealth Report, the US and Germany alone play host to over five million high net worth individuals (HNWIs), and they’ve started shifting their attentions to financial strongholds in the Asia Pacific region such as Singapore.
What about Malaysia? Does Kuala Lumpur stand a chance to become a key player in private banking and grab a slice of the lucrative market? Even as of end 2012, the private banking market stood in excess of US$46.2 trillion in investible wealth.
Learning from the Singapore experience
While many of the initiatives implemented in Singapore can be emulated, Malaysia also has its own strengths, and should look to capitalise on them.
Justin Ong, partner Asset Management Industry Leader Asia Pacific PricewaterhouseCoopers LLP Singapore, said some of these initiatives include putting in place an industry committee to independently make recommendations to the government on what needs to be done, including an overhaul of the financial and private banking ecosystem.
“The establishment of status as a hub for private banking is not just about having the infrastructure necessary to allow licensing of new players, but also consideration of the free-flow of capital, range of products catering to different wealth segments and also the availability of skilled personnel across various job functions,” he said.
This is to support the entire private banking value chain from relationship management, product development, risk and compliance as well as finance and operations.
Another important aspect of being a hub for private banking is to create an environment which will attract professionals to live and work in Malaysia, as well as attract HNWIs to come to live, work and play in Malaysia.
“This means a safe, efficient and affordable quality of living coupled with good holiday destinations, easy travel and shopping options,” Ong told Business Circle.
Is there potential for private banking in Malaysia?
Ong (pic) feels there is, especially where there is a focus on niche areas such as Islamic Private Banking. However, this potential can only be realised if Malaysia takes a different route to its development and attraction as a private banking hub as compared to countries such as Singapore, Hong Kong, Switzerland and London, among others.
This means Malaysia must find a strategic direction for Islamic Private Banking so as to differentiate itself from conventional private banking providers as a service proposition.
This also means that Islamic Private Banking needs to viewed as, and regulated as a separate financial pillar separately from conventional private banking, with its own regulatory licensing, product approvals and tax treatments for corporates and individuals.
Meanwhile, Head of Wealth Management, Asia for Scorpio Partnership (a subsidiary of McLagan) director Pathik Gupta said Singapore, Hong Kong and Switzerland are very successful offshore private banking hubs attracting wealth from all around the world. This success has been due to several factors such as their potential to talent attract talent due to growing opportunities, higher quality of life and safe environment.
Labuan is an offshore jurisdiction in Malaysia but lacks a global talent base, especially the frontline Relationship Manager who can go around the world and bring wealth into the jurisdiction. If Malaysia would like to develop itself as an onshore centre much like Taiwan and Indonesia, the requirement to build up a home-grown talent base is key.
Factors affecting Private Banking attraction
Gupta (pic) said there is also a need to strongly demonstrate a politically stable environment which is required for clients to trust their wealth in an offshore location. When a client books assets into an offshore jurisdiction, he or she is essentially entrusting those assets to a faraway place. Malaysia needs to position itself as a world class politically stable country where clients around the world can feel at ease to place their assets. In case of an onshore ambition for Malaysia, the political stability is also key in retaining HNWIs.
A positive tax regime will also be crucial in making sure both onshore and offshore wealth is attracted as wealthy clients always want to optimize their tax outlays.
Cooperation between industry, regulator and other market participants is probably one of the most important aspects as an enabler of private banking. Regulators such as Bank Negara Malaysia, Securities Commission Malaysia, etc., private banking industry players and other market participants (service providers, product manufacturers etc.) should move onto a common platform.
Regulators need to provide the right environment, while industry players need to realize commercial value, while other market participants must provide the building blocks for industry to thrive.
By creating the common platform, a private banking ecosystem can be created which will be self-sustaining.
Is there potential for private banking in Malaysia for both Islamic and conventional?
“In my view, Malaysia should develop an offshore Islamic Wealth Management market while developing an onshore conventional private banking landscape.” said Gupta.
“The offshore Islamic wealth management business would be very attractive to the Middle East clientele. Just as Malaysia has become a leader to Islamic Finance, it has the potential to lead Islamic wealth management. Competing with Singapore for offshore wealth will be a challenge,” he added.