29 September 2021 |

Next chapter of WM lending will start with PB/IB interplay: private banks

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A rapidly evolving market environment and shifting client investment styles have spurred changes in how private banks approach lending — the bread and butter of their business. Universal banks argue that future lending innovations will depend on a holistic offering that straddles private and investment banking.

Senior executives from private banks joined a conversation with asset-backed lending provider Equities First at Asian Private Banker‘s latest webinar, “Bridging Traditional Investing with Innovative Lending”. They highlighted the importance of private banks’ adaptability to market trends while nurturing long-standing ties with clients.

“How we fundamentally strike a balance between long-term relationships and our lending offering is by knowing our clients well,” said Lemuel Lee, managing director and head of wealth management, Hong Kong market, at BNP Paribas.

“In the context of lending, we need to understand our clients’ personal and business capacity, their overall wealth, their liquidity position, and assess their repayment ability.” He added that this is implemented on top of prudent leveraging and de-leveraging processes to manage risk.

“At the same time, we have to be very agile and adapt to market changes throughout the cycle,” Lee noted.

Bernard Wai, managing director, head of private client group, Asia, at Citi Private Bank, added that in order for banks to come up with innovative lending solutions they needed to be flexible in reacting to market cycles. That requires the ability to “detect the undercurrent of the market and anticipate the potential next moves”.

With clients’ needs increasingly calling for closer collaboration between lenders’ private and investment banking arms, Wai argued that this is where the “next chapter of wealth management and private banking lending propositions” lies.

He shared a recent case that the American lender worked on — “a listed company and de-SPAC play”, where Citi offered an investment banking solution and a bridge loan, while also lending against the de-SPAC. “If you take a holistic perspective, the toolbox available to the private bank expands and multiplies.”

Similarly, Lee added that the French private bank works with its corporate and investment banking arm to deliver certain lending solutions, mostly on a bespoke basis.

Crypto-backed lending on the rise

Gordon Crosbie-Walsh, Asia CEO for Equities First, said in the past year there has been a significant uptick among the next generation of high net worth individuals (HNWIs) tapping into cryptocurrency, highlighting a need for lending solutions for the asset class.

“That’s where we can really work hand-in-hand with private banks, because that may not be something that private banks are either holding or advising on,” he pointed out. “We can do crypto-backed lending and help clients use their cryptocurrency positions as leverage to bring cash back into a traditional equity model or for other purposes.”

Crosbie-Walsh said the firm’s approach to crypto-backed lending is very similar to that of equities-backed lending. Crypto-backed loans have increased significantly in the past 12 months and now make up 15% of Equities First’s lending portfolio in Asia. In the US, Europe and Australia, crypto now accounts for 20% of the firm’s overall portfolio, while equities take up 80%.

Such services can potentially complement private banks’ lending offerings, where risk adjustments within the industry such as caps on client portfolio’s loan-to-value (LTV) mean choices can be limited.

“We can come in as partners and be an add-on facility to work with private banks,” said Crosbie-Walsh. “As our LTV is usually double what private banks traditionally offer.”

Beyond traditional investing, what other avenues are available for capital seekers to utilise their holdings to generate additional income? How can non-recourse, non-purpose financing be woven into a private bank or EAM’s offering to appeal to all of its client groups?

Featuring representatives from BNP Paribas Wealth Management, Citi Private Capital Group and EquitiesFirst, together they discuss innovative finance solutions to drive income for Asia’s U/HNW client base.

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