Chinese banks need to reshape business models: McKinsey report

Facing challenges from tight regulations and disruptive technologies, Chinese banks need to reshape their business models for asset management and wealth management, McKinsey says.

Facing challenges from stringent regulations and disruptive technologies, Chinese banks need to reshape and transform their business models for asset management and wealth management, McKinsey & Company said in their latest banking report.

From 2012 to 2016, China's asset management market saw golden opportunities for development, with a 42 percent annual compound growth rate for assets under management. Among them, banks’ wealth management products are a core driver for growth, with an annual compound growth rate reaching 75 percent, the quarterly report of the consulting firm said.

However, the growth rate fell sharply to less than 8 percent in 2017 due to tightened supervision. China’s central bank unveiled new rules this April to better regulate the country’s fast-expanding asset management industry, which will pose great challenges for the sector, according to McKinsey.

Compared with global leaders in the space of asset management, McKinsey noted that domestic banks' investments in their asset management segment is generally “insufficient."

Meanwhile, digital technology is overturning banks’ traditional way of doing business.

McKinsey predicts that by 2025, income from asset management and wealth management for traditional lenders will decline by 18 percent under the impact of financial technology, thereby leading to losses in return on capital of up to 30 percent. In addition, more non-bank institutions will encroach on the market share of old players.

“China's banking industry is in a unique era, full of challenges but also containing great development opportunities,” said John Qu, senior partner at McKinsey.

Qu suggests that to cope with these challenges, Chinese banks should strengthen their investment and consulting capabilities, build more professional teams, give full play to the advantages of having such big customer bases and collaborative potential among different business lines, and embrace new technologies.

In terms of wealth management business, China's private banking industry has entered the world stage after 10 years’ development, with three home-grown lenders among the top 25 private banks globally.

Ma Ben, associate partner at the consulting giant, said that the next decade will be key for the industry’s “reshuffle.” Only those players who can really meet the needs of customers and ride the trends of the industry will stand out and dominate the private banking market in China, Ma added.

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