Johannesburg — Private banking specialists such as RMB and Investec are facing mainstream competition for a profitable market

NICHE private bankers Investec and RMB Private Bank are facing increased competition from mainstream commercial banks for affluent customers.

Absa and Standard Bank are gearing their private banking operations to attract the super rich.

The major bankers all provide private banking offerings, but many play to the mass affluent market rather than high net worth individuals.

"There's a very big distinction in the market to what private banking is," says an analyst, who asked not to be named.

"It's a generic term that usually describes two quite distinct types of business."

While most banks provide mainstream services for the mass affluent, under banners which include Priority at Standard Bank and Absa's Platinum suite of products, there's a growing focus on the very wealthy those with net assets of more than R10m.

Apart from niche players Investec and RMB Private Bank, Nedbank Private Banking, BoE Private Clients, Absa Private Bank and Standard Private Bank all target the high net market.

Many banks migrate their customers into their private banking operations once they have accumulated the necessary assets.

RMB Private Bank and Investec wrap their offerings into one, essentially servicing two different customer bases.

Typically, the entry level for the mass affluent is an annual salary of at least R400 000.

Investec targets "super affluent" customers, who earn over R600 000 a year, as well as the high net worth market.

But it deals on a case-by-case basis, so even someone earning less than R600 000 could open an account at the bank if they have the potential to quickly reach that income bracket.

"It's a business decision," says Paul Hanley, head of Investec Private Bank.

It is difficult to tell how big the market is. According to Absa, half a million South Africans qualify as mass affluent, while only 20000 families are considered to have high net worth.

"That's the market we play in," says Wilf Robinson, managing executive of Absa Private Bank.

Investec says that only about 50000 to 60000 South Africans qualify as super affluent. It agrees that the high net worth market consists of about 20 000 people.

"We have a small market share," says Hanley. "We don't regard ourselves as dominant in terms of our number of clients, either super affluent or high net worth, so there is space to grow."

Willie Miller, CEO of RMB Private Bank, says calculating how big the affluent and high net worth markets are is complicated by the fact that many customers use a number of banks .

RMB Private Bank was formed last year through the merger of Origin and Ansbacher. Miller says while Origin and Ansbacher were single product offerings into the market, the merger has created a fully fledged private bank.

Miller says that loans and advances, as well as assets under management, are currently growing at a rate of 30% a year.

Robinson says the mass affluent market is offered a "pretty much vanilla, off-the-shelf offering", where profitability is driven by volume.

In the high net worth market, Robinson says the bank relies on fees rather than interest.

Clients are offered local and offshore investment strategies, wealth preservation, asset management and structured finance services by the bank.

He says that contrary to popular belief, the wealthy do still borrow, leveraging against their assets for tax purposes, but they are more inclined to negotiate a better borrowing rate. Investment professionals advise them, rather than traditional bankers.

Absa claims about 5,6% of the high net worth or private banking market, but Robinson says some clients are currently migrating over from its mainstream bank, which would push the figure closer to 10%.

"Our aim is to get to 20%, which is Absa's overall market share, so obviously we are going to go after clients aggressively."

Hanley says the emerging black market also offers growth opportunities for private bankers.

"High income and high net worth black individuals are certainly coming into their own as a target market segment, whereas five years ago that didn't exist at all," he says.

"It's a small but growing segment, and we think that from a strategic perspective, it is vitally important."