HSBC sees growth in loans to ultra-rich with art, jets, other illiquid assets as collateral amid high interest rates

  • ‘A lot of our clients still have a huge amount of their wealth tied up in illiquid assets or concentrated assets,’ says private banker
  • In mainland China, the ultra-rich population is set to balloon by 47 percent by 2028, according to Knight Frank

HSBC, the largest bank in Hong Kong and Europe, is seeing more business from ultra-rich clients who are eager to borrow against their “illiquid or concentrated” assets amid interest-rate uncertainty.

As interest rates look set to remain elevated, HSBC sees opportunities in Asia’s ultra-high-net-worth individuals (UHNWIs), who are often asset-rich but liquidity-constrained.

While high-interest rates hurt the flow of the private bank’s lending business, it opens up opportunities on the structured lending side, said Jyrki Rauhio, head of credit advisory for Asia-Pacific at HSBC Global Private Banking.

“A lot of our clients still have a huge amount of their wealth tied up in illiquid assets or concentrated assets,” said Rauhio. The bank has “quite an active pipeline” for loans based on such collateral, which includes art, yachts, jets, single stocks, and private equity, he said.

“This is an area that is increasingly becoming interesting for clients to raise money. Yes, it costs you. But if you can plough it back into your business, why not? People are tapping these slightly more alternative sources more actively now.”

As a result of high interest rates, some assets have become cheaper and returns on many assets have gone up – some assets more than others, Rauhio added.

“Typically, when we do structured lending solutions, it’s less about the rate and more about the yield, i.e. how do we make your assets sweat harder?” he said.

The demand for wealth advisory services has increased as the number of UHNWIs grows. In mainland China, UHNWIs are estimated to increase by 47 percent by 2028, despite a global slowdown in wealth growth, according to a report by consultancy Knight Frank.

HSBC’s private bank is working to help clients increase return on equity, portfolio yield, or business return by using financing against their assets. It can lend out of five locations in Asia-Pacific: Hong Kong, Singapore, mainland China, Taiwan, and India.

The rich in Hong Kong, for example, have been avid art collectors for many years, but much of their art is idle in warehouses, Rauhio said.

In March 2023, HSBC started offering art financing loans. Other private banks, including JPMorgan and Citigroup, as well as auction houses such as Sotheby’s and Christie’s, also provide art-secured loans.

With popular art exhibitions and new museums in the city, plus the government’s push to make Hong Kong a hub for wealth management and family offices, the city is on the global art map.

“If you go to any of the fine arts warehouses in Hong Kong, they are all full of art,” Rauhio said. “That means you have literally billions of dollars of prime collateral sitting there costing you money, insurance and storage. Why not release some of that equity and put it to work? This thinking has been reasonably new in Asia. But it’s starting to change.”

Last year, global art sales reached around US$65 billion, surpassing pre-pandemic levels, according to a report by Art Basel and UBS. Mainland China and Hong Kong together represented the second-largest global art market with a 19 percent share, behind the United States’ 42 percent.

 

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