Private banks fail to gain traction in China

Private banks have their eyes on the growing number of high-net-worth individuals on the mainland, but getting their attention is proving to be a challenge.

For one thing, the self-made millionaires believe they can generate higher returns than those available from private banking products. For another, the free transfer of assets across the border is forbidden and not all the high-net-worth individuals are eligible to open offshore accounts, limiting their ability to participate in many wealth management products.

In the circumstances, it was not uncommon for mainland clients to question why they should put their money in private banks, said Eduardo Leemann, the chief executive of Falcon Private Bank.

"Returns generated by businesses on the mainland and onshore investments can reach 20 to 30 per cent a year," Leemann said. "By comparison, asset management by private banks may give returns of just 6 to 7 per cent. So they [mainland clients] ask why bother to have private bank accounts outside the mainland."

Alan Luk Ting-lung, the assistant general manager and head of private banking and trust services at Hang Seng Bank, said it was not easy for affluent mainlanders to transfer their assets across the border. "Not many of them have companies outside the mainland," he said.

Individuals with offshore companies can transfer capital across the border with the permission from mainland authorities. There is no limitation on companies to exchange yuan outside Hong Kong, as long as there is an adequate supply of the currency. So those offshore companies can do so in Hong Kong freely and wait for appreciation of the yuan. They may use both company and private bank accounts for such conversion.