More customers will switch banks and watch out for China

China's top leaders attend the closing session of the annual National People's Congress held in Beijing's Great Hall of the People

China's top leaders attend the closing session of the annual National People's Congress held in Beijing's Great Hall of the People

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HIGH Street banks need to be prepared for a significant loss of market share this year as dissatisfied customers start switching their accounts, claims Duncan Lawrie Private Bank, which has a branch in the island.

It alleges growing customer dissatisfaction with high street banks, coupled with a demand to a return of a more personal service means that the days of 26-year average customer retention are over.

The bank points as evidence to a report commissioned with YouGov between August 14 and 16, 2012 with a sample size of 1,008 UK HNWIs (high net worth individuals) with over £250,000 investable assets which showed that over three quarters (76 per cent) wanted a more personalised banking service.

In 2011, the Independent Commission on Banking set out stipulations on account redirection, saying that banks have a time limit of seven days to switch customer accounts – the ICB wants this to be fully operational by September 2013.

Matthew Parden, managing director of Duncan Lawrie Private Bank said: ‘The repercussions for the banking industry will be severe. With rock bottom faith in High Street banks and with many customers disgruntled at the service they are getting, we predict that people will start to look around. And the independent private banking industry is set to be a beneficiary.’

Mr Parden added: ‘2013 is set to be another year of changes for consumers, which need to be planned for and considered.

‘For people to preserve their wealth and maximise their financial circumstances, they need to be conscious of the changes taking place and look into the best options available to them. Whether it means switching banks or seeking financial or investment advice, people need to be proactive around their finances in 2013.’

l Meanwhile the bank predicts India’s growth potential will continue to be strong in the New Year but Duncan Lawrie believes China is the one to watch in 2013. Its pick-up in GDP growth rate and estimated corporate stability means it is hugely under-valued.

Despite the failure of GDP to meet the beginning of year forecasts of 7.5 per cent pa growth, India’s main index, the BSE Sensex 30, ranked as the clear winner in market performance terms in 2012 when compared with other BRICs. Favoured by Duncan Lawrie Private Bank at the start of 2012, India knocked the other BRIC (Brazil, Russia and China) countries into a cocked hat, appreciating in monetary terms by over 15 per cent.

The banks says the question at the start of 2013 is who to watch this year?

In India, investors were given a rollercoaster ride, with a depreciating currency thrown in for good measure, and it was only after the middle of the year that the BSE Sensex 30 index established a firm upwards trend.

The catalyst for this firmer course was the government’s third quarter announcement of reform initiatives, including the resurrection of FDI (foreign direct investment in multi brand retail).

Edward Bland, director and head of research at Duncan Lawrie Private Bank said: ‘The Indian government, at long last, appears to be taking steps to cut some of the red tape and investors can take heart that further long pending reforms to stimulate the economy now stand a better chance of being implemented.

‘The question on India is, however, whether it will continue to be the prime performing emerging market.’

Edward Bland, added: ‘While not losing faith in India’s enormous growth and long-term potential, we believe valuations in China have reached historically low levels and do not properly discount the pick-up in GDP growth rate and corporate earnings expectations.

‘The transition to new leadership has gone smoothly, providing more certainty and promises more impetus to measures to support domestic consumption such as basic health care, and the acceleration of urban and infrastructure investment.’

In summary, Bland believes that in the short term the market may once again be disappointed by the lack of progress in India, in contrast to China which is much better placed to implement large scale reforms, such as the Special Economic Zones from the East Coast to the West, which will increase urbanisation, improve per capital income and drive consumer spending higher.

China is certainly set to be the ‘top dog’ in 2013 but India’s long-term potential mustn’t be discounted – it remains to be a compelling longer-term investment proposition.

Stock markets: Duncan Lawrie Private Bank envisages continued volatility across equity markets, due to the cocktail of low GDP growth rates, political uncertainty, and high sovereign debt levels. However, the backdrop of low interest rates and continued policy stimulus (QE et. al) is constructive for equities versus bonds. There is the capacity for markets to grind higher in 2013.

Mobile Banking: banks will invest heavily in m-banking in 2013 as big players such as Google leverage new technology to steal more of the market share.

Stop gap in lending: despite Government schemes trying to boost lending, there will be continued caution into 2013 as legislation such as Basel III means banks have stricter capital demands even less capacity to lend. As a result, payday and other alternative forms of lending will soar following continued increased borrowing in the last few years**.

Landscape for annuities: the cost of implementing the European Gender Directive will fall on consumers in 2013 resulting in lower overall annuity rates for both men and women.

l MPs’ gold plated pensions will lose their lustre in 2013: Duncan Lawrie Private Bank predicts that MPs will face calls to bring their pensions in line with private and other public sector pensions, after the news in the Autumn Statement that MPs’ pensions are exempt from the reductions in both the annual and lifetime allowances.

Disappointing pensions: The drop in lifetime allowance will mean companies need to look to find alternative methods of remunerating high earning employees, particularly those with defined benefit schemes, which could see a resurgence of EFRBS (Employer Funded Retirement Benefit Scheme)-like products and the increased use of workplace funded ISAs as part of employee benefit packages. There will also be a corresponding surge in VCT and EIS usage by HNWIs looking to boost tax reliefs lost by previous drops in the annual allowance.

Child benefit: As it starts to reduce in 2013, the onus will be on consumers to opt out of child benefit payments if their income exceeds the threshold. A large number of people are likely to be unaware of the changes, which will mean they will hit with the need to repay any benefit they received that they were not entitled to when they complete their 2013/14 tax return.

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