Study On China’s Private Banking Development

With the rapid increase of income of national citizens in 2007, private banking has come into being as a formal service of banking in Chinese commercial banks, as a result of which,2007 has been regarded as the first year of Chinese private banking.The word "private banking" comes into being in the financing life of the rich in China. At the background of the separate operating, regulations and market instrument lacking, private banking has rapidly been regarded nominal. Thus, it is not a good beginning of the development of private banking, and the research on private banking is quite necessary and urgent.On the topic of the Chinese private banking, the dissertation discusses two aspects:the background of private banking, including its practical and theoretical source and its operating models.As to the practical source of private banking, the discusses two topics:firstly, the process and reason of private banking development. Private banking was born in Switzerland in 16th century, when many French aristocrats went to Geneva of Switzerland to escape religious prosecution. Some of them took up the management of assets in order to protect their assets. With the development of commodity economy and trade in 17th century, the form of personal assets has been diversified and social division has been specified. As a result, private banking has developed rapidly. In 18th century, with the development of industrial revolution, the United Stated has become the top industrial country, and the center of private banking changed from Europe to United States. In 70s of 20th century, the Asian economy developed and the assets accumulated rapidly. Private banking has come into being in Hongkong and Singapore. In the 90s, the combination of private banks become more and more, which is the characteristic of international private banking.As to the operating of private banks, it refers to a series of specialized financing products and service focusing on assets management for the High Net Worth Individual. The characteristic of it is to provide financing service according to customers’interests, including assets management, investment, trusting, duty, heritage, collection and auction, by the service of one-to-one fulltime consultant. The qualification of it is the amount of high net asset. Different areas and different banks may have different qualification of the amount. Anyway, the qualification will generally accord to the local opinion on the rich. Take for example, at present, the customers of private bank mainland China should own 10 million RMB.On the theoretical analysis of private banking, the dissertation concludes that private banking should focus on cost reducing and service diversifying based on the transaction cost theory and economy of scope theory. The main function of private banking should be providing financing service for the rich based on the financial intermediary theory. The present functionalized institution cannot be applied to private banking based on the organization theory. Finally, the service should take account of the privacy and increment and personalized service.As to the operating model of it, there are two issues. Firstly, as to the characteristic of the two models, from regional point of view, there are European model and USA model of private banking. Form provider’s point of view, there are commercial banking model and invest banking model. Swiss bank belongs to the European model, which focus on the European customers privacy protection, unlimited responsibility of the bank and stability of increment. While the American model follow the way of investment bank, which focus on the high yield of the customers.Secondly, on the analysis of the development of the two models, there are three factors that affect the diversity of the models:the main factor for the diversity of model is the way of assets accumulation, the main factor for the diversity of service is financing inspecting policy and the duty regulations directly affect the in and off bank service.At the very beginning of Chinese private bank, the financial crisis in 2008 has caused many American investment banks, esp. Lehman Brothers Holdings bankrupt and mint deficit of European banks, esp. Swiss Bank and Hong Kong and Shanghai Banking Corporation. Both the American way of investment bank and the European way of privacy protecting way are in trouble temporarily. As a result, the model of the private bank should be reconsidered:neither merging nor investing in hurry but focusing on providing proper service according to the customers’ interests bases on the stable operating should be a best way. On the reflection of the history of private banking, the dissertation analyzes the key factors of the it:operating and managing according to the needs of the customers. The needs of customers are affected by the assets increment and social background, which owes to the scope of the service. This service is not generalized and standardized but regionalized and historically.As to the Chinese practice of private banking, the dissertation discusses three topics. The first topic is the analysis on the supply and demand of private bank. First, in 2008, there are about 300 thousands people in China own more 10 million investable assets and 29 million assets per capita, which makes to customers of private banking. Chinese customers’ risking preference of private banking is medium and conservative. Due to the financing crisis, they would like the diversified investment and financing products that can maintain the value. Investment that maintaining the value and the offspring education are their financing objects. Usually the customers are meanwhile the VIP of a bank and they prefer the unique service to the physical environment.Secondly, as to the service of private banking, up to March 2009, there are 15 commercial banks private banking service, and 5 of them are Chinese banks. There areas stretch from Shanghai, Beijing, Shenzhen, Guangzhou and Hangzhou. Facing with the medium risking attitude and diversified financing needs. At the background of the operating of the domestic commercial banks having not merged, the service of private banking should focus on the maintenance of customers and providing different and diversified service by cooperating with famous international investment banks, funding companies, and insuring companies rather than simply chasing profits.As to the financing service and product design, at the premium development of private banking, the service should base on stable financing product, together with reasonable risking, trusting and insuring products by CPPI consulting service.The service of private banking should be based on CPPI one-to-one consulting to determine the customers’assets configuration and some others ways like risking assets combination. The CPPI way is more concise and practical to provide some comparison of risking and income combination for customers for choice.Because of the accumulation of assets of Chinese private banking customers, the present service should pay attention to the prevention of risk and to developing stable and configurative financing products.When choosing the risking financing products, a scientific evaluating system should be established by two means:Apart from that, at the background of separate operating, the service of private banking can be realized by trusting service.In order to preserve the property and solve the obligation disputes, the need of customers for insuring products are quite strong. The research on the insuring products can be enlightened from behavior finance theory and customer behavior theory, to design the specific product of the customers. At present, based on the banks sales resources, the consensus model is a good one.The third topic of Chinese private banking practice isits organization and management. The dissertation discusses four aspects:the organization, the management of customer relationship, the promoting mechanism and risk management.Chinese organization of private banking in commercial banks should be similar to the credit card service, which is a spate unit directed by the head office.The management of customer relationship can be divided into four parts:the customer system, the product system, the system of management of customer relationship and the system of operating service. Because the needs of the customers are mainly the personalized service, and the environment is restricted by policies, in the future, the service may mainly focus on specifying the promotion of VIP service, and separate management and personalized service.The stress of promoting mechanism should be on the diversified and equal salary system. The consultant who plays an excellent role should be raised. Meanwhile, some other promoting ways can be combined, like material, cultivating and spiritual encouragement. The spiritual encouragement should not be barren but enthusiastic.The management of risk management is an important part of private banking service. Compared to the simplex service of commercial banks, the service of private banking is more complicated. The risks of it are report risk, credit risk, market risk, operating risk, fluidity risk and legal risk. At present, the commercial banks provide private banking service and the risk management of private banking are closely related with that of commercial banks.Private banking as the new alternative at the background of assets disintermediation and retailing service transformation of commercial banks, the importance of the service and the specification of the customers are the theme of the dissertation. The research of Chinese private banking should be based on the research of international private banking on its source, development process and model. On the analysis of theories, the dissertation tries to clarify the future direction and best model of Chinese private banking. The dissertation does some innovative research on the background, rule, supple and need analysis and practice of Chinese private banking. In the future, with the rapid development of Chinese private banking, the improvement of the research can adopt some new approaches, new cases and new data.