Stanchart reboots Wealth Management
Standard Chartered Bank Botswana CFO says wealth management is an opportunity that the bank has not exploited much.
The banking industry is generally made up of two income streams, paramount of these being interest income that is generated through lending. But for many reasons, the opportunity for growth in interest income, even globally, is getting thinner and thinner.
Locally, this is evidenced by the decline in profitability of banks owing to record low interest rates coupled with limited opportunities. But according to Standard Chartered Bank’s Chief Finance Officer, Dr. Mbako Mbo, the opportunity to grow non-interest income is expanding. From a banking perspective, investment in securities is something that banks do for many reasons like ensuring prudent liquidity management or as another income stream. At StanChart, Dr. Mbo says they invest in securities to grow the capital market and to park reserve funds not necessarily from an asset management perspective, given that it is not the business the bank operates in. But as income from lending shrinks with each passing year, the need for alternative income steams has never been more apparent and urgent.
“We have been talking about upscaling the priority business and the wealth management business. Through those we will be coming to the market with a lot of interesting investment options with a lot of products for our clients so that we can start to lift the non-funded income line.” Dr. Mbo told The Business Weekly & Review, noting that the bank has a solid plan to lift the non-funded income with non-interest income.
He says a lot of the bank’s income, more than was the case in the past, will come from non-funded income products and digitalisation opportunities. “We believe we have not exploited the wealth management business, the CFO told The Business Weekly & Review. We did come to the market with probably the most experienced people who have managed to get into the business just to reboot our wealth management. We have been talking to clients around the market and I think there’s just that level of interest coming and there’s a lot of other work that is ongoing”.
StanChart’s wealth management falls under the Retail segment which has now been renamed Consumer, Private and Business Banking. During the 12 months ended 31 December 2020, the segment registered a 3 percent growth in income driven by a 6 percent growth in client assets. Non-interest income for this segment was 4 percent down on account of substantially reduced transaction volumes during lockdown periods. This is inspite of the non-funded income base expanding during the year with a successful rollout of Cash Depositing Machines across the country, a main feature of the bank’s reconfigured client interface centres (Express Banking Centres or EBCs).
Dr. Mbo says digital channels with touch points were severely impacted by movement restrictions. “If you leave the house to go to an ATM, you are using a digital touch point. This is a very big constituent of our income stream. If you are restrained from moving, those transactions go down,” he notes, adding that where the bank saw an uptick on digital transactions was the likes of online payments. But as much as the uptick comes with an uplift in income, StanChart was giving a 25 percent discount on charges which eroded the benefit a bit. “On the two lines that I have mentioned, I think the reduction was very significant. There was a point where we had a 53 percent decline in our normal use of visa transactions.”
The Corporate, Commercial and Institutional segment saw a 28 percent year-on-year growth in income as the commercial sub-segment broke into profitability. A strong run in client transactions, including Corporate Finance delivered a 10 percent growth in non-funded income, with another 4 percent growth in trade income coming from currency trades. The segment emerged from a marginal loss in the prior year to record a PBT of P57 million.
StanChart’s trajectory was impacted by the breakout of COVID-19 since 2019. In 2020, the bank saw a slump of activity due to lockdowns. “We would go for two days without a single transaction. But we saw recovery like anyone else in the market late into Q3 and Q4,” Dr. Mbo says, adding that the direction of growth also speaks to the nature of the portfolio. “The growth that we have been seeing was led by the retail sector. We managed 6 percent in 2018. Last year was 10 percent. If it was not for COVID-19, we would still be in the region of 10 percent. It means it significantly slowed down the growth we had been accustomed to from 2018 and 2019.”
The full cycle of the rate cut (1 percent) has a huge impact, looking at the P8 billion asset base of StanChart. The bank is very strong on corporate deposits. During Q1 last year, credit extension was constrained by the economy itself from just a risk culture perspective as banks were very selective in the way they lend. “Obviously during times of growth, your deposits have to grow faster than your assets. Where now you get constraints you have to slow down more aggressively on deposits than you do on your asset base,” Dr. Mbo says.