CIMB: Malaysian money flowing to neighbouring Singapore

Malaysian capital markets and regulatory red tape are sending high networth individuals south of the border to seek private banking solutions, the head of CIMB Group Bhd’s private banking division said.

Malaysian regulators are not keeping pace with the development of the private banking industry such as allowing access to offshore financial products, said Carolyn Leng, whose unit manages RM8 billion in assets.

“Our regulators have to be more proactive to look into how to vibrantly promote Malaysia as a financial hub because we are looking at millions of dollars flowing down south just by virtue of the restrictions that we have here,” Leng told Reuters in an interview for the Reuters Global Private Banking Summit.

A recent report from Merrill Lynch-Capgemini showed that the total wealth of high networth individuals in Asia-Pacific stood at US$9.7 trillion (RM30 trillion).

Despite the regulatory obstacles and the challenge of changing mindsets in Malaysia, Leng expects the industry to become a lot more competitive with more participants.

Malaysia saw steady capital outflows through 2008 and 2009, although inflows have started to return, mainly into the country’s deep and liquid bond market.

Leng, however, doubts that Malaysia’s private banking industry can hope to capture some of the inflow of funds that is expected to flow in from advanced economies as part of a wall of money flooding into emerging markets.  The lack of proper regulatory infrastructure and capital market limitations on access to offshore products have stunted the growth of the Malaysian private banking business, Leng said, to the advantage of the country’s Singaporean neighbours.

Private banking remains a relatively young industry in Malaysia, with CIMB having started its operations only nine years ago.

At first, growth was muted, but the industry as a whole has seen a spurt of interest in the past few years.

“We have seen a number of financial institutions looking to set up a private banking arm to cater to high networth individuals.

“In the last two or three years, we have seen the emergence of interest in local financial institutions to compete for this segment,” Leng said, citing EON Capital Bhd and Hong Leong Bank Bhd as new entrants.

“Private banking today is about profitability and providing advisory services. It has become a driver for a lot of financial institutions... it’s no longer a hush-hush thing.”

In a country where savings and investments have traditionally been placed into either low-yielding, low-risk fixed deposits or potentially high-yielding, but potentially risky equities, Leng said private banking clients have to be convinced of the value of a balanced portfolio.

She said the 2008 financial crisis had changed the way Malaysians viewed financial management.

“Pre-global financial crisis, everyone was pretty happy — the market was good and everyone was happy with their respective (investment) choices,” she said.

“But post-crisis there is a lot more focus in terms of risk. Clients have become very savvy in that respect (and) are beginning to question the alignment of interest — are you in for the money or are you in for my interest?”

The challenge for Malaysia, Leng added, was convincing clients of the value added that private bankers brought to them.

She said that towards that end, CIMB has started moving away from a product-oriented approach to wealth management as clients have started to appreciate the advisory approach instead. — Reuters


This article appeared in The Edge Financial Daily, October 5, 2010.