The volume of funds of wealthy individuals managed by Russian banks in 2017 will exceed 7 trillion rubles. What financial instruments do private banking customers choose and how have their preferences changed recently?
The market of private banking – banking and investment services for wealthy individuals – in Russia in recent years has grown by an average of 15% per year without taking into account currency revaluation, experts at Frank RG have calculated. According to analysts’ estimates, by the end of 2017, the volume of wealthy clients under the management of banks in the Russian jurisdiction will amount to 7.2 trillion rubles.
Customers who receive private banking services from the largest players in the market (the criteria for referring to this category for banks are different, the threshold for entry varies from 1 million to 100 million rubles), according to specialists’ estimates, form an average of 20-25% of all liabilities attracted by banks. At the same time, this segment of customers in recent years has changed its preferences – the share of investment products in the portfolio of wealthy customers is gradually growing.
Leading players confirmed this trend to RBC, and also noted the change in the attitude of private banking customers to investments in rubles, real estate investments and opportunities provided by Western markets.
Why investments are more interesting
According to Frank RG, the share of investments (investments in instruments other than deposits) in the total private banking portfolio increased from 10.5 to 13.6% in 2016 and continues to grow this year. Experts attribute this to several reasons.
According to Binbank’s investment director Roman Serpeninov, low interest rates are being pushed to search for alternative cash investments of many clients. “With respect to foreign currency deposits, the rates of most banks have come close to zero. As for ruble deposits, the yield on them falls after the key rate. Recently, the Bank of Russia once again lowered it (to 8.25% per annum), “says Olga Degtyareva, head of the department for working with wealthy families of Uralsib Bank. According to the Bank of Russia, the average maximum rate on deposits in rubles in leading banks decreased over the year by more than 1.5 percentage points.
Another reason may be a decrease in confidence in Russian banks due to loud reviews of licenses and sanations (Yugra Bank, Binbank, FC Otkritie), believes Georgy Mayorov, head of the investment products development department at Locko Private Banking (a division of Loko Bank). “The investment products offered in private banking allow not only raising the portfolio’s profitability, but also removing the bank’s risks,” he said. Even in the event of the most pessimistic scenario regarding the bank itself (license revocation), the client will be able to transfer securities to the account of another organization without losses, Frank RG experts explain.
Ulan Ilishkin, Deputy Chairman of the Board of Rosbank, Head of L’Hermitage (private banking branch of Rosbank), notes that the reason for changing preferences is the significant expansion of the list of investment decisions by Russian banks and financial companies, as well as raising the level of knowledge of the clients themselves.
According to Roman Serpeninov, over the past year or two, the share of private banking deposits has fallen from a conditional 80-90% of the total amount of placed funds to 50-70% for clients who previously had some investment experience. The head of Sberbank Private Banking, Evgenia Tyurikova, said that 70% of the portfolio is accounted for by bank deposits, but “there is a clear shift towards investment,” whose share has increased by about a quarter and continues to grow over the year.
“Every year the interest of clients in investment products is growing, and we are predicting the continuation of this trend,” says Dmitry Breitenbikher, head of the department for working with wealthy VTB clients.
According to experts, private-banking clients are most interested in fixed-income instruments (ruble bonds and eurobonds) and structured products with capital protection, which allow at worst to return 100% of the funds deposited, and, with favorable developments in the market, to obtain higher yields . But among the wealthy customers there are those who are ready to invest in more risky decisions – shares, derivatives, high-yielding risky bonds.
Foreign markets – additional opportunities
Among the new trends in the behavior of private banking clients in recent years, experts have noted a growing interest in investing abroad.
According to Olga Degtyareva, now the share of assets with foreign risk in the investment portfolios of clients “Uralsib | Private Bank “exceeds 30%, while a few years ago, clients of such assets were virtually nonexistent. This is due both to a change in the attitude of wealthy customers to foreign investment, and the emergence of the necessary infrastructure. “It used to be difficult and expensive to use foreign assets and instruments (ETFs, hedge funds, etc.) in the western markets. Now the situation has changed radically, “she says.
Igor Ryabov, Head of UniCredit Private Banking in Russia, adds that the opportunities of foreign markets allow replicating (replicating) their investment strategies already implemented within the country, at new sites where the choice of instruments is wider.
Roman Serpeninov also confirms that foreign markets, which have a much wider range of possible investment ideas, are attracting increasing interest. “For example, if a few years ago in the portfolio of securities with fixed income in foreign currency were mainly eurobonds of Russian companies, now there are no surprises for foreign issuers, people are ready to consider them,” he said.
Currency or rubles
Although the share of the most conservative instrument (deposits) in the portfolios of wealthy customers is decreasing, structural changes are also observed there: the ruble’s credibility has somewhat increased. In this case, the currency is still the largest part of the deposits.
According to Ulan Ilishkin, the share of funds in rubles in the L’Hermitage Rosbank portfolio of deposits of VIP-clients increased from 40 to 52% per year, the share of investments in dollars has not changed significantly and is about 40%, the share of investments in euros has decreased almost in two times and is about 8% of the portfolio. “Stabilization of the ruble exchange rate (for two years the ruble strengthened against the dollar by 7% – RBC) and the high real interest rate on quality assets in the Russian currency is gradually affecting the preferences of customers,” he says.
“In the last couple of years against the background of stabilization of the ruble, confidence in the national currency has grown. As the terms of currency deposits opened in 2013-2015 expire, subject to stabilization of the ruble exchange rate and low inflation, we can see activation of investments in ruble instruments, “says Sergey Potapeyko, head of the private banking business of Gazprombank. Now the portfolio of private banking clients’ assets in Gazprombank is more than 70% composed of hard currencies (primarily dollars), he notes.
Olga Degtyareva also notes that the ruble as a currency of investment and preservation of capital has recently become more trusted. On the other hand, among the first generation of state owners who have gone through several crises, preferences have not changed – they are betting on the dollar.
In the first half of 2017, the stable rate warmed up interest in the ruble, but a short-term surge of interest is still difficult to call a break in the trend: well-off investors still prefer foreign currencies, says Evgenia Tyurikova. According to her, traditionally the segment of private banking has a high share of foreign currency investments – about 70%.
Russian real estate is less attractive
Another change in the trend that has occurred in recent years in the private banking segment is a reduction in demand for investment in Russian real estate. And interest in investing in overseas real estate remains.
“The income brought by investment in Russian real estate, given the existing costs, is less than satisfying investors’ expectations. So we can say that interest in new investments has decreased, “- says Roman Serpeninov. Rent rates are falling, and the discount on the secondary market can reach tens of percent, if it is a question of elite real estate, experts say. “Liquidity is very weak, the market is completely moving to a model where the rules dictate a rare buyer and discounts at the sale reach extremely significant sizes,” says Georgy Mayorov.
At the same time, according to Mayorov, investments in foreign real estate are in higher demand. The number of applications for investing in overseas property is stable, about 10% of the total number of requests, states Dmitri Breitenbacher. “There is interest in projects abroad, including within the framework of geographical diversification of assets. Many clients have investments in real estate in Russia, and some are considering the possibility of a complete exit from such, “- confirms Igor Ryabov.
Evgenia Tyurikova also notes a steady demand for foreign investments in commercial real estate. Here it is not a question of purchasing real estate for personal use – investments in direct investment funds targeting European commercial real estate are offered. People are increasingly beginning to trust collective investment in this sector, considering funds for real estate as alternatives, Serpeninov added.
In addition to the traditional methods of investing, some private banking clients are considering others. “It’s not limited to talking only about securities: both ventures, and crypto-currencies, and even investments in companies dealing with artificial intelligence technologies, are frequent topics,” says Igor Ryabov. “In general, customers have become more open to innovative projects and private equity, they are more and more interested in venture funds and alternative investments in general,” agrees Yevgenia Tyurikova. At the same time, Sergey Potapeiko from Gazprombank notes that, despite the bank’s ability to offer its clients investment products in crypto-currencies, so far the interest of wealthy clients has been sporadic.
But in general, private banking clients are conservative. “The main trend is trivial and unchanged: a wealthy client first of all thinks about the safety of his assets, and then he chooses from those investment options that are available in the lineup of the main players,” notes Georgy Mayorov. “The main goal is to save funds, rather than to search for higher yields. So the expectations from filling the portfolio correlate with this rule, “Roman Serpeninov emphasizes.
Author: Ivan Anoshin
Article in Russian: RBC Daily