By Saeed Azhar and Jeffrey Hodgson - Analysis
SINGAPORE/HONG KONG (Reuters) - Global private banks, used to serving Asia's wealthy from Hong Kong and Singapore, are increasingly jumping directly into the region's local markets, betting that tougher restrictions there will be offset by a bounty of new millionaire clients.
Capital controls and limits on what products they can offer are just some of the constraints these international players are prepared to accept as they enter new markets like China, India, Japan and South Korea.
Banks are looking to drum up business from newly-minted wealthy in those countries who are unfamiliar with or reluctant to deal with foreign banks in more liberal offshore financial centers like Hong Kong or Dubai.
This will mark a challenge for institutions used to the offshore model pioneered by Switzerland and adopted with relish by Singapore -- where tough bank secrecy laws are paramount to attracting investors' money from all over the world and bankers are free to offer a wider range of products.
"The biggest problem is because your hands are tied it makes you, as a big international real private bank, look like your domestic competitors," said Roman Scott, managing director of Calamander Group and a consultant to the private banking industry in Asia for the past decade.
"If you truly allowed them to go into the market with the full range of what they are capable doing ... they would just kill the domestic competition."
Private banks' hunger to tap Asian markets directly was highlighted this week when Wall Street giant Morgan Stanley (MS.N: Quote, Profile, Research, Stock Buzz) told the Reuters Wealth Management Summit it would make a major drive into India next year, hiring 100 private bankers in a bid to manage $1 billion in assets by the end of 2010.
The head of Asia-Pacific private banking for Credit Suisse (CSGN.VX: Quote, Profile, Research, Stock Buzz) told the event it was preparing to enter Japan's private banking market next year.
BNP Paribas (BNPP.PA: Quote, Profile, Research, Stock Buzz), France's biggest bank, said it is doubling its team in China next year and looking to make a 30 percent boost to staff in India and Taiwan.
"Our approach is to be onshore in all the key markets in this region," said Michel Longhini, head of BNP Paribas private banking Asia-Pacific.
"We expect in the coming three years we would start to have the same type of flows in both onshore and offshore markets."
BOOMING GROWTH, BUT TIGHT RULES
The allure of Asia's domestic markets lies in their high growth and massive potential.
The number of wealthy individuals in Asia -- people with more than $1 million in financial assets excluding their homes -- grew 8.6 percent to 2.6 million in 2006, according to a report by Merrill Lynch and consultants Capgemini.
Asia's wealthy saw the value of their assets rise 10.5 percent last year to $8.4 trillion, topping a growth rate of 10.3 percent in North America and 7.8 percent in Europe. Continued...
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