UBS vies for Chinese digital bank licence

Written by Ruby Hinchliffe
12th May 2020

UBS is planning to build a digital banking platform, but its creation depends on the Swiss bank landing a Chinese digital bank licence, South China Morning Post reports.

“We need scale, and I’m going to get that scale for UBS, working together with the Chinese authorities,” says Edmund Koh, the bank’s head of Asia-Pacific.

The platform going live will have to wait until China puts its digital banking rules in place, which Koh thinks will arrive by June or July.

China’s banking sector is the largest in the world by assets

The rules are designed to ease foreign access to China’s financial market, allowing banks like UBS to create digital subsidiaries and own majority stakes in them.

China’s banking sector is the largest in the world by assets, holding around $40.1 trillion in value in the first quarter of 2019.

Koh says acquiring a wealth management client currently costs UBS $25,000 per client, but he thinks the bank could cut this down to $60 if it launched its own digital, branchless bank.

The exec envisions growing the bank’s current 30,000 customer base in Asia to 200,000 within the next two years, once a digital bank licence is secured in China.

UBS’ Asia-Pacific business turned over $800 million in pre-tax profits for the bank in the first quarter of 2020

UBS, if successful in its application, will be offering online banking services alongside Alibaba’s MYBank and Tencent’s WeBank, as well as the only two other approved digital-only banks in the country – Baidu’s AiBank and China Citic Bank Corporation.

A source told South China Morning Post that new rules are likely to be stricter, requiring higher reporting standards and capital requirements, pushing up the cost of running a digital financial operation in China.

Whilst many banks are focusing on lending to their domestic markets amid coronavirus, UBS had a record-breaking first quarter in the Asia-Pacific region.

“A lot of big banks are looking inward to support their core domestic business right now,” says Koh, highlighting that his foreign division contributed 31% to the bank’s pre-tax earnings in the first quarter of 2020, making up $800 million in pre-tax profits.