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Private banking gaining traction

A QUARTER century after the Iron Curtain fell private banking is firmly rooted in Slovakia. Still, compared with western Europe, such avenues for managing personal wealth remain in their infancy.“When we look at the history of private banking, for example, in the United Kingdom, it dates back to the 17th century,” Katarína Sásiková, head of private banking at J&T, told The Slovak Spectator. “In Slovakia, this service does not have such a history and also because of this, its current situation is different.”

Art is one way to diversify investments.(Source: SME)

A QUARTER century after the Iron Curtain fell private banking is firmly rooted in Slovakia. Still, compared with western Europe, such avenues for managing personal wealth remain in their infancy.
“When we look at the history of private banking, for example, in the United Kingdom, it dates back to the 17th century,” Katarína Sásiková, head of private banking at J&T, told The Slovak Spectator. “In Slovakia, this service does not have such a history and also because of this, its current situation is different.”

According to Sásiková, this reflects in how investors respond to changes in the market.
“An experienced investor knows that a short-term drop in the stock market is part of investing, while in Slovakia people come to terms with this only with difficulties,” said Sásiková, adding that [general] financial literacy is improving. “Because of a longer experience with private banking, clients from abroad are more demanding.”

Other banks that provide private banking services do not see a big difference.

“The differences in providing private banking services in Slovakia and in western countries are negligible and take into consideration the specific features of clients in each country,” Katarína Boledovičová, director of private banking at Tatra Banka, told The Slovak Spectator. “Private banking in Slovakia is comparable with private banking in other European countries.”

Boledovičová added that private banking in Slovakia uses the experiences of their foreign bank groups and the offer of products and services is comparable with the offer of clients in other EU countries.

Michal Šubín, director of private banking at Privatbanka, agrees.

“Although the tradition of private banking west of Slovakia is older, I do not have a feeling that the Slovak client wants less than those to the west,” Šubín told The Slovak Spectator. “Services have been gradually balancing and knowledge of clients, too.”

The current situation

Banks providing private banking services report an increase in the number of clients and volumes of assets, even though recent years of economic crisis have affected this sector as well. In general, private clientele are a very interesting segment for banks because of the high potential for stable, long-term growth.

“The potential for the development of private banking in Slovakia is growing,” Zuzana Ďuďáková, spokeswoman for UniCredit Bank Czech Republic and Slovakia, told The Slovak Spectator.

At J&T the number of private banking clients grows each year, “which corresponds with our opinion that in Slovakia there are enough people for whom this service is appropriate and who can afford it”, Sásiková said. But this service has also become available for a bigger group of people as the bank provides some services to clients with a lower volume of finances, starting at €10,000.

Generally, private banking targets those with some hundreds of thousands of euros.

At J&T they register a growing number of people searching for a complex solution for finances, an individual approach and more than just the traditional services of retail banks, Sásiková said.

“People are getting used to this service [of private banking] very quickly,” she continued. “This is because they have less time and they need to find somebody with whom they can entrust their finances.”

According to Boledovičová, the number of private banking clients is more or less stable.

“It is rather the volume of assets under administration that is growing,” she said, adding that several clients after problems in Cyprus or other tax havens have moved their money back to Slovakia. “Clients feel the differences between countries and banks; yield or interest rate is not paramount.”

At Privatbanka they have registered an increase in assets under management by some 30 percent over the last two years and the number of clients have grown at a similar rate. But, according to Šubín, the situation in private banking is affected, as in other sectors of financial services, by record low rates on bond markets. As a consequence, when clients and banks search for yields comparable with those achieved in the past, clients and also some bankers target investments which are significantly riskier.

“We assume that it is necessary to adjust to the situation today and accept it,” Šubín said. “Simultaneously low yields mean that clients should pay significantly more attention to their finances than in the past when it was enough to buy one or two bonds and if appropriate keep them until they mature.”

Private banking clients can choose from a wide variety of investment tools, and bankers see using different strategies as important.

“One of the most important strategies for a successful long-term portfolio is diversification; the portfolio is always a mix of investment tools,” said Boledovičová.

Bankers are registering a shift where clients are more interested in investing in private equity. But Šubín warned that while the private equity projects are popular, clients who do not understand this field should be cautious.

The number of clients looking for alternative forms of investing like art, coins or real estate, is increasing, too. These are categorised as passion investments, which apart from a decent return provide enjoyment as the investor is passionate about owning them.

“Their advantage is that they have a low cohesion to the economic cycle, making them resistant to crises and economic declines,” said Sásiková, adding that compared with traditional investment tools, these are in a minority. “We recommend that clients invest 5-10 percent of their portfolio this way.”

Lukáš Jankejech is a student of the University of Economics in Bratislava.

Topic: Finances and Advisory


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