While other financial services are hurting from a second wave of the global financial crisis, private banking for high-end customers is going against the tide.
A recent survey conducted by international auditing company KPMG shows market participants expect 5 to 7 percent annual growth over the next three years.
Conducted in September-November 2011, the survey was based on 13 banks, 11 of which were Ukrainian banks and subsidiaries of foreign institutions, and two were asset management companies.
Tailor-made financial services are taking off in Ukraine’s biggest cities, the KPMG report also concludes.
Wealthy Ukrainians are exhibiting a growing appetite for the elite payment cards and personalized financial advice that private banking entails. Moreover, with only a third of eligible clients covered, banks offering the highest level of service can reap potentially huge rewards.
Private banking is synonymous with wealth, managing the assets of “high net worth individuals.” But while traditional Western private banking defines “high net worth” as over a $1 million in liquid assets, Ukrainian banks accept clients starting from $85,000. According to the report, this should correspond to yearly incomes starting from $10,000, though most banks expect incomes in excess of $150,000.
Individuals seeking private banking services should have a clear source of money, said Oleksiy Aleksandrov, who heads the private banking department at leading Ukrainian bank Ukrsibbank, a subsidiary of France’s BNP Paribas banking group. He noted clients were eligible for such services starting from $100,000 to $300,000 deposit contributions.
Asked about the services provided, Aleksandrov said these were simply classical banking services – payment card, deposit and credit propositions, as well as stock market operations. The key difference was the personalized approach.
Nick Piazza, the former CEO in charge of setting up private banking services at the now defunct investment bank BG Capital, also highlighted the importance of an individualized approach.
Concierge services like booking plane tickets or providing translators for business meetings were particularly in demand, he said. Interest was certainly there: From the second half of 2009 to mid-2010 BG Capital’s private banking unit attracted Hr 150 million.
Yet there is still much room for growth. Only a third of Ukraine’s high net worth individuals currently use private banking services, almost half of which are business owners, with top managers constituting another third.
Oleksiy Demyanenko
The key to winning them over, according to Piazza, is word of mouth and building trust. While this can take a lot of time and energy, each new client comes with friends and family. “Once you got in you picked up a whole network,” he said.
The competition has clearly caught on. Piazza noted that a growing number of boutique Swiss outfits were flying in bankers to hunt down clients at high-profile networking events, or even nightclubs.
Together with the growing popularity of offshore banks, based in deregulated and discrete jurisdictions, this constitutes the biggest threat for local players.
Yet a lack of high-trained personnel is still holding back the industry, the KPMG report said, particularly in terms of financial and legal knowledge. This is also true of clients, Piazza noted, as many fail to properly understand the risks involved.
Legal hurdles can also be a hassle.
Oleksiy Demyanenko, an associate at the leading law firm Asters, noted that Ukrainians interested in buying foreign-listed shares need to obtain an individual license from the National Bank of Ukraine.
This costs Hr 1,700, a trifle for serious investors, but also requires the approval of organized crime counteraction authorities.
A further problem is the price evaluation act, which kicks in for purchases for intellectual property rights purchases of over 100,000 euros, Demyanenko said.
As a result, the purchase of a trademark or patent requires a review that can last several months, officially meant ensure the price was fair.
The main purpose, however, is to limit the amount of money being moved out of Ukraine, he said.
The report identifies Ukrsibbank, Ukrainian-owned Privatbank, Russian subsidiary Alfa-bank, Hungary’s OTP and Austrian-owned Raiffeisen Aval as the market leaders.
Nonetheless, market players claim the next three years will be dominated by banks with Russian capital, particularly Sberbank Rossii and VTB, as they are sitting on large amounts of cash, unlike their European counterparts.
Kyiv Post staff writer Jakub Parusinski can be reached at [email protected].
