Singapore's OCBC sees growing demand for more sophisticated structured products by Indonesian high net worth (HNW) investors, as it launches its private banking business in the country through its 85%-owned subsidiary, OCBC NISP.

OCBC NISP has obtained regulatory approval to establish the Private Banking unit to manage the wealth of Indonesians with Assets Under Management (AUM) of more than US$1 million with a comprehensive range of wealth management solutions, including more sophisticated structured products.

"Structured products based on various asset classes (Exchange Rate, Interest Rate, Credit, Equity, Commodity) are commonly included as wealth management solutions. Eligible private banking customers [in Indonesia] are expected to demand for such offerings, depending on their respective risk appetite profiles," said Ibu Parwati Surjaudaja (pictured), president director Bank OCBC NISP. "For now, we expect our customers would be most comfortable with structured products based on exchange rate and interest rate risks, with tenor not longer than one year."

In general, the current risk profile of Indonesian customers is more on the conservative-to-balanced side of the spectrum, and the current range of products available are more of the traditional ones, Surjaudaja noted.

"However, we believe that the market can be a fertile ground for structured products as there will be customers who actually have more aggressive risk profile," she pointed out, adding that "demand for more sophisticated financial products is growing". "With the single digit interest rate trend, clients are looking for diversified products that are able to provide higher return."

In the broader sense, the tax amnesty program and other government initiatives are expected to accelerate the need for the wealth management. Continuous government efforts in improving Indonesian financial system transparency, in line with AEOI as well as the long anticipated upgrade on Indonesia credit rating by S&P, along with currently unprecedented low interest rate environment are expected to spur demand and excitement for wealth management products and services, according to Surjaudaja.

The tax amnesty itself is regarded as one of the most successful in the world and it is a game changer for all related parties - the customers, financial institutions as well as regulators.

"We see this as a good opportunity for the banking industry.  The challenges would be more into how regulators and banks work hand in hand to ensure that the country have products that fulfil the needs for investors to invest in Indonesia," she said.

There is probably no better time to revisit some of the regulatory restrictions that have been put in place to protect customers and investors in light of harsh lessons in other markets, Surjaudaja added.

According to regulations, banks can't sell non-principal protected products to retail customers, while 'eligible' customers, with an individual portfolio of IDR 5bn (US$0.375m), can't be sold products whose loss can exceed the invested amount.

"Indonesian customers are now more mature and knowledgeable from risk management perspective, and are actively seeking financial products and services globally in order to enhance their wealth management," she said.

OCBC NISP has hired an industry veteran, formerly with a global private bank, to lead the new Indonesian private banking team. This individual has more than 20 years of experience in advising high net worth private clients, family offices and business owners in Southeast Asia. The launch team includes four other private bankers who have an average of 18 years of onshore and offshore private banking experience and deep knowledge of regional markets, the bank noted. The team is expected to double in size by the end of the year.

OCBC is amongst the bigger structured products providers in the Asia-Pacific region, with over 500 tranches distributed, including 18 live products, according to the SRP database.

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