EXCLUSIVE INTERVIEW: ICBC Has Big Wealth, Private Banking Ambitions; RMB Business Surges

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1 EXCLUSIVE INTERVIEW: ICBC Has Big Wealth, Private Banking Ambitions; RMB Business Surges Tom Burroughes, Group Editor, 23 March 2015 China's biggest bank is already top of the heap when it comes to clearing the renminbi and at the forefront of the country's drive to be a major financial power. The bank also thinks big in terms of wealth management. China s largest bank, Industrial and Commercial Bank of China, has been making waves for the sheer volume of clearing it conducts in the renminbi currency, a big barometer of its prowess as the Asian currency ascends to being a global reserve currency. The bank recently announced that its accumulated RMB dealing volume had touched a whopping RMB40 trillion ($6.45 trillion), seeing a rise of more than 1,300 per cent to RMB37.5 trillion last year from RMB2.6 trillion in 2013.

2 But ICBC is also a bank with big wealth management ambitions and already is a significant operator in the field. Mainland Chinese banks also face growing liberalisation moves by China s Communist Party-run government; foreigners have more freedoms to own Chinese equities and invest in the country. ICBC and its peers also face competition from Western firms looking to build wealth management businesses in the Asia-Pacific region. This publication recently questioned the bank about its currency activities and its wealth management operations. Cao Yunchuan, deputy general manager for ICBC Singapore, responded to questions. ICBC is a big player in the RMB bond market. Can you give any figures on how much issuance it has handled in the offshore RMB market so far (so-called "Dim Sum" bonds)? Does the bank have any figures on its share of the issuance market? ICBC as a group actively participates in the RMB bond market, both within and outside of China. According to the full year 2014 figures from Dealogic, ICBC Group acted as bookrunner in one out of every five offshore RMB bond issues at a total value of over $2.1 billion. ICBC Singapore has also been actively involved in developing the offshore RMB bond market in Singapore; it is the only Chinese bank in Singapore to have a debt capital markets team and arranged the first corporate RMB bond issue in Singapore (i.e. Hainan Airlines). Besides that, ICBC Singapore has also been on board many high-profile transactions, including Province of British Columbia issuance and Basel III tier two subordinated issues from ANZ, BNP Paribas and Commonwealth Bank of Australia. From the vantage point of an issuer, does ICBC have any idea of how many wealth management-type clients (private banks, family offices, other) are buyers of such bonds? What sort of paper do they particularly like in terms of maturities, types of issuer, investment grades, etc? As an issuer in the debt market and a listed company, ICBC maintains close contact with our investors and we interact with them on a frequent basis. Our investor base is varied and ranges from real money investors (i.e. investment fund managers, central banks, and insurance etc.) to banks and private banks. We see interest in highly rated Chinese credits like ICBC from all types of investors, but mostly from asset managers and banks. Wealth management-type clients (particularly private banks) are keen buyers of high-yield bonds and can support up to 50 per cent of the issue size for many transactions. Do private banks ask your bank about the type of paper they want to buy and why? Singapore as a private banking hub in Asia is home to many private banks and family offices. ICBC Singapore has been always in constant engagement with the many private banks and family offices that have made Singapore their regional private banking hubs. While we see varying interest in the type of papers due to different needs and investment objectives, interest from these investors is usually in the higher

3 yielding papers with shorter tenors and good liquidity. Investors in this segment are driven more by an attractive coupon and the potential yields on trading the papers on the secondary market. How would you broadly describe the state of the RMB offshore bond market at the moment? Is the market being affected by concerns about diverging global monetary policies, geopolitics? There is no doubt that the offshore RMB bond market has developed significantly since it started with the first issuance in 2007, but the lack of liquidity means that there is still room for improvement before the market realises its true depth and breadth. The global currencies like your G3, G7 currencies are always affected by monetary policies and geopolitics, the RMB will be no different - as it becomes increasingly internationalised, this will have a corresponding effect on the offshore RMB bond markets. However, at this moment, much will be dependent on any onshore policies by the China government that will set the market tone and direction of the offshore RMB bond market. How do think global investors are changing in their awareness of the offshore RMB market? What further steps do you think need to be taken, or are being taken, to improve it further? In terms of awareness by global investors, there is definitely greater interest in the offshore RMB markets by investors in Europe and even in the Americas now compared to five years ago. The Chinese government has taken many measures to internationalise the RMB and [to gain] the acceptance of the RMB as a global trade currency and a reserve currency. With that, we maintain a positive outlook towards the long-term view of the RMB and that the RMB will form a crucial part of global investors portfolio. Does ICBC's own wealth management business give the parent bank much feedback about the kind of bonds that clients want to hold? Definitely. The interest of our clients and being aware of their product preference are of paramount priority to ICBC and, correspondingly, we keep close contact and provide frequent feedback to our head office. Such feedback is key towards our head office strategic planning to meet our clients needs. When did ICBC first get involved in the offshore RMB market? ICBC as China s premier banking institution has always been actively involved in the offshore RMB market. Our involvement in the offshore RMB market dates back to when the Chinese government first implemented measures to internationalise the RMB. I believe of greater importance is how ICBC is involved in the current and future development of the RMB market. ICBC Singapore, as the very first overseas branch of ICBC established in 1993, has grown from an offshore bank to a qualifying full bank, which was awarded to ICBC in Subsequently in 2013, ICBC Singapore was appointed by the People s Bank of China as the sole RMB clearing bank in Singapore.

4 Amidst the high clearing volumes, ICBC Singapore has constantly been increasing its clearing efficiency, increasing its RMB clearing volume to a high of RMB37.5 billion in 2014, growing 13 times from that in We have also arranged a number of firsts in the offshore RMB market, such as the first cross-border loan into the Shanghai FTZ, as well as the first dual-listed SGX, GreTai Securities Market Lion- City bond issuance. ICBC has also been appointed as the RMB clearing bank in Bangkok, Doha, Luxembourg and Toronto, a testament of our commitment to the offshore RMB market. What sort of developments in the offshore RMB bond market does ICBC expect to see in the next few years? What sort of risks/challenges remain? As the RMB achieves greater acceptance as an international trade and reserve currency, we expect to see the offshore RMB bond market to become even bigger than it is today, with greater diversity of issuers and investors. However, unlike the G3 bonds, which are priced based on a specific benchmark index (e.g. US dollar bond pricing off US Treasuries), the lack of a benchmark index for pricing RMB coupled with lack of liquidity needs to be overcome before RMB bond markets can achieve the magnitude of the G3 bond markets. Is ICBC looking to set up more offices across the Asia region as part of its business development in this area? If so, can you give any examples? Through our continuous endeavour and stable development, ICBC has developed into a top-notch bank in the world, possessing an excellent customer base, a diversified business structure, strong innovation capabilities and market competitiveness. As China s largest bank by market capitalisation, ICBC will also endeavour to expand business to support the internationalisation of the RMB. For example, ICBC Singapore was the first appointed RMB clearing bank outside Greater China and ICBC was the first Chinese bank to set up a local institution in the Middle East and subsequently the sole RMB clearing bank in the Middle East region. With the global use of RMB increasing throughout the years, ICBC aims to be the authorised bank for clearing RMB in more countries. On a slightly separate topic, how large is the part of ICBC business that caters for wealth management clients (as defined as being high net worth individuals), in terms of numbers of clients, assets under management, staff? Is there a distinct part of ICBC that focuses only on wealth management? ICBC Private Banking set its sail along Huangpu River in 2008 as the first private bank in China licensed by the China Banking Regulatory Commission, offering a wide range of professional, confidential and customised financial services tailored to high net worth customers. Today, ICBC Private Banking has created a presence in 36 domestic private banking centres and four overseas private banking centres, including the establishment of the ICBC Singapore private banking hub in 2013 as the Southeast Asia regional hub and the offshore centre of global private banking. As of the third quarter 2014, ICBC has over 40,000 private banking clients with over $110 billion in assets under

5 management. ICBC has a specialised wealth management unit with over 60,000 customer managers, of which over 4,000 are certified financial planners and over 28,000 associate financial planners.