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28 February 2024

Sub-prime woes fail to dent confidence

By Staff Writer



The global private banking and wealth management sector in the region remains in a “confident mood” despite the effects of the sub-prime crisis, according to research carried out by financial services firm KPMG.

While KPMG undertook the study in May last year, before the credit crisis broke, the key findings of the report were only released yesterday. The company believes the events following the sub-prime meltdown have not impacted their view and that private banking remains “the current bright spot in the global banking landscape”.

The private banking and wealth management sector is responsible for around $100 trillion (Dh367trn) worth of assets, according to a study by Boston Consulting Group. The survey research conducted by KPMG found that confidence levels in the private banking segment are the highest in the Middle East and Asia Pacific regions.

The research found that smaller banks are under less pressure than in previous years, and hence are not seeking partners. China, Russia, the Persian Gulf, Eastern Europe and India represent the strongest growth potential for private banking and wealth management, according to the research.

The findings by KPMG come in the wake of warnings by global financial analysts and economists of a possible recession in the US economy followed by a global slowdown. Banks have been selling stakes to plug the losses created by sub-prime writedowns through the second half of 2007.

“The reason for the contrary view with regard to private banking is two-fold,” said Phil Knowles, head of financial services division, KPMG-UAE. “Firstly, private banking only represents a distinct segment of the global corporate banking sector, a sector that comprises a modest proportion of the industry as a whole.

“Secondly, commission income from share dealing is a key driver of wealth management revenues. So, if global share prices were to suffer a prolonged fall, then the private banking sector could suffer accordingly. At the moment though, it seems to be escaping the ravages of the credit crunch.”

The growth in population, the boom in construction and property segment and rising oil prices have all contributed to a greater number of high-net worth individuals from emerging markets such as the Middle East, according to Knowles. “What we are seeing in the Middle East is a shift in traditional investor attitude from low-risk investments in Europe and North America to the emerging markets of Far East and India.”

Knowles said the Middle East accounted for “a key proportion” of the $100trn managed by the global private banking and wealth management sector.

The firm surveyed 166 private banking and wealth management executives from 38 countries around the world as part of the research. Around 48 per cent of the respondents who were interviewed as part of the survey said they were actively seeking targets for acquisitions, compared to just 18 per cent last year. While more than 90 per cent of respondents said they expected some kind of improvement in prospects for growth over the next three years, the report said.