Wealth Management. Ukraine in association with. published by. Wealth Management Ukraine

Transcription

1 Wealth Management Ukraine published by in association with & Wealth Management Ukraine

2 2 Wealth Management Ukraine 2012

3 Foreword A private banking culture emerges Just 20 years ago, Ukraine was a Soviet Socialist Republic. Officially, there were no wealthy citizens. Today, the richest 100 Ukrainians have an estimated combined net worth of more than US $54bn (Forbes, April 2012), while the richest 200 have US $85.2bn (Focus, March 2012). This rapid and astonishing expansion has outpaced growth in the provision of private banking and wealth management services. It has also run ahead of the development of the country s tax and regulatory systems. This presents both opportunities and threat to all players in the sector. Figures based on tax data put the number of affluent individuals (those with more than US $100,000 liquid assets) in the country at below 2,000 in However, qualitative research conducted for this report suggests the figure today is probably in excess of 30,000. At most, only 30% of Ukraine s rich list are believed to use private banking, though numbers turning to private banks are increasing by 30% each year. Factors preventing even more rapid growth include severe restrictions on the legal transfer of capital offshore, a limited stock exchange and the absence of an established private banking culture amongst both local banks and wealthy Ukrainians. Nevertheless, research for Wealth Management Ukraine 2012 suggests that most wealthy Ukrainians keep about 60% of their assets offshore. This is partly due to a lack of confidence in local banks ten closed or were rescued by the government last year and partly due to the superior experience offered by more established players elsewhere. Private banking in Ukraine is forecast to grow rapidly. In this first dedicated report on the sector, we provide a snapshot of the current state of play. The research was conducted in Ukraine in the first quarter of 2012 by Eurasia Insights and Ukraine Business Insights magazine, sponsored by Coutts. It is focussed on talking to banks active in the sector. Simon Hardie, Managing Director, Eurasia Insights Svitlana Barnes, Publisher, Ukraine Business Insight Michael Vlahovic, Head of Russia CIS, Coutts & Co Ltd Wealth Management Ukraine

4 Key insights Waking up to the opportunity The private banking opportunity in Ukraine is largely unexploited Official figures suggest that 30% of high net worth clients in Ukraine use private banking services. However, the leading market participants interviewed for this report believe that this number is optimistic, and that the opportunity is largely unexploited. A culture of private banking has yet to be firmly established It is not surprising that private banking is undeveloped, considering that the majority of business people in the country with more than US $1m in investable assets are relatively young and new to wealth. Private banking is beginning to grow As the Ukraine economy expands, people are becoming more concerned about protecting their private capital. This is driving the development of the private banking and wealth management sector. Referral is an essential acquisition tool Clients tend to come through two routes: either they already have contact with the financial institution, or they are introduced to it through their private networks. Differentiation is challenging Developing a full private banking and wealth management proposition is difficult because of restrictions on moving capital offshore and the small local stock market. Retail-type bank accounts for affluent clients proliferate which leaves service as the key differentiator for private banks. Clients are looking for strength and transparency The impact of the global banking crisis on Ukraine s banking sector, combined with concerns for protection of private capital, are benefitting institutions that can show financial strength and transparency as well as advise ways to take money offshore. Clients expect high levels of personal contact Frequent face-to-face contact is expected at all stages of the relationship. Digital channels are only used in a limited, tactical way. Methodology This is a qualitative research report based on a series of interviews and online surveys conducted during March and April Sponsored by Coutts, Eurasia Insights and Ukraine Business Insights gathered the opinions of leading private banking providers based in Ukraine and abroad. They shared their views and insights on wealth in Ukraine, their clients and the outlook for private banking in this emerging economy. To encourage candour, all interviews and viewpoints have been reported on an anonymous basis. 4 Wealth Management Ukraine 2012

5 Private banking in Ukraine A new sector in a new economy A young sector with plenty of potential 24 private banks in industry club Interviewees expect revenue growth of 30% on last year Further competitors expected in the market Private banking has only existed for eight years in Ukraine. The first organisation to offer a banking product for affluent and high net worth customers was UkrSibbank in Since then, competition has proliferated. Private Banking Club This club was set up in Ukraine to encourage crossindustry cooperation and idea sharing. It also sets out to raise standards and awareness of private banking services to a new generation of wealthy individuals. The club now has 24 members. The sector is growing The Private Banking Club s awareness-raising activities are well timed. As Ukraine s economy grows, so do concerns about political and economic threats to private wealth. Respondents to the research were highly optimistic about the prospects for their industry. It is likely that the number of competitors will continue to grow throughout This is despite product ranges being constrained by restrictions on moving private capital offshore, and the local stock market being small. Performance and fees When talking about the performance of their specific private banking business lines, many interviewees said they expect revenue growth of 30% on last year. This was partly explained by an apparent inflow of funds from offshore companies and accounts. Typically, banks do not charge for opening an account or deposit accounts. Income is generated via charges for additional services such as safety deposit boxes and concierge services. There is also a menu of charges for transaction fees, as well as fees for premium and ultra-premium cards. Fig 1. Private banking industry consolidation New entrants likely Number of providers to stay the same International providers will dominate Some consolidation Local providers to win market share % Source: Wealth Management Ukraine 2012 Wealth Management Ukraine

6 A profile of wealth New money, new needs Our research suggests that the threshold for private banking services in Ukraine stands at about US $100,000 although some smaller institutions deal with clients with US $20,000 in investable assets. Most banks we interviewed said they preferred to have clients with between $500,000 and US $1m. Displays of wealth are common for Ukraine s new rich A typical high net worth individual Male business owner between 35 and 45 years old Not used to wealth and hasn t begun to think about inheritance or succession issues Likes to show wealth through cars and ultra-premium credit cards Wary about losing money and looking for wealth protection from a bank they feel they can trust Doesn t expect to pay fees for services which means any paid-for service would have to show clear and tangible benefits to justify charges Values face-to-face meetings over all other forms of communication 6 Wealth Management Ukraine 2012

7 Client profile example Key statistics Age: 40 Based: Kyiv Source of wealth: Business owner Wealth objectives: Wealth protection for family and succession planning Other objectives: Feels responsibility to improve country Wealth management provider: Offshore global private bank What is your opinion on wealth management services in Ukraine? The concept of wealth management in Ukraine started around seven years ago, but I do not think many individuals understand it. Some local banks started to provide these services, but for me private banking is a traditional business that requires experience. I am not sure it is possible for a local company to offer wealth management services. I divide my finances between business and family. I use a large international bank. The relationship with the bank manager is important for me. I want a low-key bank with good service and personal contact with the manager. I understand that banks need to offer new things such as electronic banking and internet transfers, but for me these things are not important. My bank is focused on being closer to the customer and this is what I want. How did you select your bank? From their reputation and also their client list. I understand they have a good reputation with their other clients. Also, if you sense this is a good relationship, then the decision is easy to make. I visited their offices and saw how they worked. Sometimes a company s publicity is good but there is nothing behind it. How long did it take you to decide to bank with them? I value stability and I do not want to change providers often. It did not take very long to decide because I had a specific query and required a specific solution quickly. I have been with my bank for 16 years and it is a stable relationship. Perhaps if the bank wanted to become part of a larger group I might have changed because in the crisis some of the big groups in Ukraine collapsed. Has it become easier or harder to protect your money in the last two years? It has not been easy since the economic crisis, when questions about risk, security and trust have been brought to the fore. Banks are asking where clients money comes from and where it goes. Over the years I have tried to build relationships with colleagues, business partners and my bank. Stability is what we need and stability means transparency. How does the bank create trust with you? I feel valued when I receive a personal greeting on my birthday or at New Year. This shows that they remember me and it reassures me that things are going well and that the bank cares about my money and about me. It is also important for me to have personal contact and I visit their office in London once a year. Wealth Management Ukraine

8 Coutts Russia CIS London T: Zurich T: Geneva T: Monaco T: Singapore T: Published by Eurasia Insights Simon Hardie Managing Director Tel: +44 (0) and Ukraine Business Insight Svitlana Barnes Publisher Tel: +44 (0) This is a White Paper extract from Wealth Management Ukraine 2012 Report. 8 Wealth Management Ukraine 2012