April 2018

Emerging market access for investors drives significant ratings increase in seven core areas of service capability in leading client perception survey

Global Custodian magazine has rated Deutsche Bank a global outperformer for sub-custody services in 10 emerging markets. Published in January, the magazine’s Agent Banks in Emerging Markets (ABEM) survey measures client perception on a quantitative basis to qualitative questions on seven areas of service capability. Clients’ responses to the survey take into account the key regulatory, infrastructure and technology developments in the various markets that are impacting investors’ ability to access them.

The survey aims to measure changes in the relative levels of appreciation year-to-year for each provider’s own set of clients. In doing so, it covers cross-border client responses with scores for each of the seven areas of service (settlement, asset servicing, relationship management and client service, reporting, technology, ancillary services and value delivered). A total of 24 questions covered seven core areas of service capability and rate providers using a seven-point scoring scale (7.00 being excellent; 6.00 to 6.99 is very good, 5.00 to 5.99 is classified as good and 4.00-4.99 is considered satisfactory). Global performer means the bank’s scores are better than the average scores across the overall survey.

The markets for which Deutsche Bank has been rated a global outperformer – China, India, Indonesia, Malaysia, Philippines, Taiwan, Thailand, Hungary, Poland and Turkey -  reflect the MSCI’s and S&P’s classifications, as well as the bank’s commitment and longstanding presence in those markets. Following the developments described above, several markets surveyed have further improved access for investors, and Deutsche Bank has played a key role in enabling such access.

China

The Chinese market, for example, welcomed three developments during 2017 that have improved investor access:  firstly, an increase of the Renminbi Qualified Foreign Institutional Investor (RQFII) quota for Hong Kong to RMB500 billion; secondly, the further liberalization of China Interbank Bond Market (CIBM) Direct Access Scheme for foreign institutional investors and the opening up of the onshore FX derivatives market to CIBM investors for hedging purposes; thirdly the introduction of a new T+2 settlement cycle in CIBM, which provides them with more flexibility for their funding arrangements. In addition to these market access improvements, Stock Connect was extended to include the exchanges of Hong Kong, Shanghai and Shenzhen, and Bond Connect was launched for bond trades between mainland China and Hong Kong.

These developments spurred the inclusion of China A shares in the MSCI Emerging Markets Index and have led to the growth of Deutsche Bank custody offerings for QFII, RQFII and the CIBM Direct Access Scheme, as well as the subsequent increase in assets under custody in 2017 by 21% yoy. The bank has also increased the number of clients under CIBM Direct Access Scheme by 50%, making it the third largest foreign custodian bank in China in terms of CIBM clients. It has provided timely and accurate updates to clients on the above market developments and supported flexible account structures. Furthermore, the bank’s local custody and bond settlement agency capabilities support clients’ investment in both the exchange and inter-bank bond market.

Global custodians, broker dealers and banks impacted by these developments gave Deutsche Bank scores of very good in the Technology (6.00) and Settlement (6.00) categories. In Asset Servicing Deutsche Bank scored 5.54, lifting its average score to 5.61, a year-on-year increase of 11 basis points. Nonetheless the bank beats the global average across six out of seven categories.

If you wish to discuss how Deutsche Bank can support you in China please contact Allen Kuo on allen.kuo@db.com

India

Capital inflows from foreign investors in India continue to grow unabated, evidenced by record foreign inflows and the associated growth of assets under sub-custody held by Deutsche Bank in India across asset managers, global custodians, broker dealers and banks. The bank is a market leading service provider for many of the large investor groups, with a 40% share of all Foreign Portfolio Investor (FPI) accounts in the market.

Underlying this growth are Indian regulators’ efforts to improve the product and market efficiencies in India for foreign investors in particular.  For instance, they have allowed FPIs to invest in unlisted debt securities and securitised debt instruments up to a maximum limit of INR 350 billion and to invest in Clearing Corporations and Depositories through the primary market. SEBI has permitted FPIs to operate in  the IFSC and trading members of the recognized stock exchange in the IFSC to rely upon the due diligence process already carried out by a SEBI-registered custodian during the registration and account opening process for FPIs in India. SEBI and RBI have also relaxed investment limits for FPIs investing in corporate bonds. This means that Rupee denominated Bonds issued overseas by Indian corporates (Masala Bonds) would no longer be reckoned against the Combined Corporate Debt Limit (CCDL), now known as the Corporate Debt Investment Limit (CDIL) for FPIs.  The regulators also created a sub-limit exclusively for investments by Long Term FPIs in the infrastructure sector. Category-I and Category-II FPIs are permitted to directly access Electronic Book Provider platforms of recognised stock exchanges and Corporate Bond Markets.

In supporting these investors, Deutsche Bank improved on all of its 2016 ABEM survey scores, which were in the very good range (6.00 - 6.99) across the board. This year, it has managed to improve on all of them, especially in the areas of relationship management & client service, technology and value delivered.

In the first instance, an ability to support FPIs from various geographies coupled with the strong global resources enables Deutsche Bank to provide world class services across diversified client segments in a constantly evolving market like India.  One US asset manager surveyed said, “Their willingness to go above and beyond regular work hours to assist their international clients is top of the line.”

Secondly, state-of-the-art technology and expertise with unparalleled quality and consistency have helped to support the investor interest in India, where Deutsche Bank has not only enabled speedy FPI registration and account set-ups but has also introduced client friendly tools to simplify the client experience.

Thirdly, Deutsche Bank India is known for its thought leadership particularly in product innovation and the Namaste India publication, recognised as a definitive market-entry guide book for foreign investors.

 

If you wish to discuss how Deutsche Bank can support you in India, please contact Sriram Krishnan on sriram-a.krishnan@db.com

Indonesia

Indonesia has made significant strides towards extending investor access in the last year. This includes the Indonesia Clearing and Guarantee Corporation’s (KPEI) current drafting of a mechanism for clearing members and custodian banks to become general clearing members (GCM). This regulation is being prepared by the Indonesia Financial Services Authority (OJK).  The GCM scheme should further improve the capital market industry’s efficiency as brokers can focus on their core business to increase transaction volume and also expand their client base. In addition, the central depositary (KSEI) is also working on a system platform upgrade for custody and clearing/settlement, enhancing its current capacity and processing capabilities.

Another key development is the upcoming introduction of e-proxy and e-voting, allowing shareholders to vote electronically at meetings without physically having to attend them. In addition, the planned introduction of a T+2 settlement cycle is expected to enable market participants to adjust their funding arrangements.

In Indonesia, Deutsche Bank provide sub-custody services to some 40% of all foreign assets in the country. With this market share, the bank has gone from strength-to-strength in the ABEM survey, with an overall points tally of 5.6, 41 basis points higher than 2016, making it the most improved of all Indonesia’s custodians. Most of the bank’s respondents were in the Very Large category. Its performance is 21 basis points higher than the global average. In Asset Servicing, it is 42 basis points above the global average. The bank was also recently named ‘The Most Active Custodian Bank’ by KSEI last week, during celebrations to market their 20th anniversary in Jakarta. The award was based on the number and value of securities transactions performed within the last year as well as the number of securities sub-accounts managed by Deutsche Bank.

If you wish to discuss how Deutsche Bank can support you in Indonesia, please contact Elwin Karyadi on elwin.karyadi@db.com

Phillippines

The Philippines has seen several key developments in the local securities market, of which Deutsche Bank has been in the forefront in shaping. For instance, the bank’s latest advocacy effort has focused on the simplification of the process and requirements for tax treaty relief for non-residents. It has spearheaded discussions with the Association of Global Custodians on this topic, including feedback and comments from the perspective of non-resident investors on the Tax Reform for Acceleration and Inclusion Act (TRAIN) Package 4, which aims to redesign taxation of the financial sector to make it simpler, fairer and more efficient. The bank continues to lobby on behalf of foreign intermediary clients on the requirements and process for FX and repatriation privileges for oversubscriptions on rights offers (where a 50% threshold is still in place) and for brokers’ gains on turnaround trades, which the current FX regulatory framework does not yet cover.

Given this position, Deutsche Bank has been the top ranking custody provider in the country for both domestic and cross-border clients not only on the basis of custody assets size, but on client feedback ratings and market involvement as well. 

 

The bank’s scores in the ABEM survey climbed from 2016 by an overall 38 basis points, giving it an average of 5.48, which is the highest among the custodian banks in the Philippines, even higher than the market and global averages. The bank recorded a massive increase in Reporting, jumping 83 basis points from the previous year and received an exceptional rating of 6.00 for Relationship Management and Client Service.

If you wish to discuss how Deutsche Bank can support you in the Philippines, please contact Hannah Nuñez on hannah-vina.nunez@db.com

Taiwan

A change to the regulation on public tender offers in 2017 resulted in a particularly active year for the Taiwanese securities market. In this vein, Deutsche Bank spearheaded an initiative to eliminate counterparty risk when transferring securities. This means that Custodian banks now are able to transfer the deposit securities by book-entry to the mandated institution directly, without the need to transfer securities to a designated broker in between. An industry group, which includes Deutsche Bank, worked jointly to come up with a market standard qualifier for rights issues, replacing the different rights qualifiers issued by custodian banks in SWIFT messages in Taiwan.

The bank’s Taipei Branch is one of the largest custodians in Taiwan, with an estimated market share of around 15% based on the net remittance amount of foreign investors as of December 2017. In addition to the leading role in the custody space, Deutsche Bank is the only foreign bank in Taiwan providing account operator service to ICSD.

As such, Deutsche Bank is this year’s second highest rated provider in the ABEM survey. Relationship management and client service is still its key strength, maintaining its ‘very good’ rating in this area.

Thailand

The big development for this market is the preparation for the two-day settlement cycle (T+2) with target implementation date on March 2nd, 2018.

In addition to preparing clients for this date, Deutsche Bank provides market entry solutions to the local clients for their investment in offshore markets and supports them with information on market entry requirements. This support has result in very good scores including 61 basis points increase in Asset Servicing. Overall, it exceeds both market and global averages.


If you wish to discuss how Deutsche Bank can support you in Thailand please contact Uemthip Savetsila on uemthip.savetsila@db.com

Poland

Poland has made significant strides in the development of its capital markets and as such was  reclassified by FTSE Russell from an Advanced Emerging to a Developed Market status. The implementation of this revised market status will commence from September 2018. Marek Dietl, President of the Warsaw Stock Exchange, said: “The FTSE Russell upgrade of Poland to Developed Market status represents an acknowledgement of the progress of the Polish economy and capital markets and is a major step in their development.

“Poland has all the features of a developed market, including secure trading and post-trade services, as well as advanced infrastructure.”

On the back of The FTSE Russell announcement, and with the anticipation of further growth opportunities, the Warsaw Stock Exchange, together with Polish Development Fund, submitted a non-binding offer to buy controlling stake in Tel Aviv Stock Exchange TASE.

In a crowded market, Deutsche Bank out-ranked its peers in all categories bar settlement (6) and technology (6.11). In others it scored the highest for relationship management and client service (6.38), value delivered (6.08), asset servicing (6.62), ancillary services (6.5) and reporting (6.5).

If you wish to discuss how Deutsche Bank can support you in Poland, please contact Bogumil Kloc on bogumil.kloc@db.com or Jacek Popiołek on jacek-a.popiolek@db.com.

Turkey

Through the acquisition of the institutional sub-custody business of Garanti Bank, not only has Deutsche Bank maintained in excess of 85% of assets under custody in Turkey, but it has since won further third party business from non-resident investors such as global brokers, global custodians and financial institutions.
 
In addition, the bank continuously lobbies for the interests of clients in various areas of the custody and clearing services infrastructure. It has a history of shaping the securities markets’ infrastructure developments such as introduction of the licensing requirement for the custodian banks and the change of the fee calculation methodology at the CRA, the investor CSD for government debt securities.

Deutsche Bank’s average score was in line with last year, though it did significantly better in Ancillary Services—38 basis points more than 2016. Clients praised the bank’s polite and proactive team and its market knowledge.

If you wish to discuss how Deutsche Bank can support you in Turkey, please contact Hakan Ulutas on hakan.ulutas@db.com

Hungary

The biggest change in this market is the replacement of the local settlement system in order to implement TARGET2-Securities (T2S) in February 2017. Deutsche Bank worked with the Hungarian CSD KELER on eliminating system discrepancies and was the primary test partner for their STP programme. The market is also in the midst of corporate actions messaging standardisation for the handling of income payments and meetings to align the country with international directives where Deutsche Bank is developing a guidebook for corporate actions and income payments. The bank has also played a significant role in the development and law formation of the nominee concept.

With a fails coverage service, back-to-back trade processing, full STP, close relationship with the CSD and stock exchange, Deutsche Bank retain its ‘very good’ rating in the technology category and its average score increased this year to 5.45, four basis points above the market average. The bank holds almost 20-25% of the market for cross border foreign assets in terms of AuC.

If you wish to discuss how Deutsche Bank can support you in Hungary, please contact Wei Wei Liu on wei-wei.liu@db.com

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