GC’s Central Eastern Europe survey in 2015 did not cover Russia and as a result service providers were keen to include the region in this year’s survey. Overall figures for Russia accounted for just over 13% of all responses with the figure being the same whether viewed in terms of absolute numbers of taking account of the weight assigned to different respondents.
One clear takeaway from the survey was the dominating presence of VTB Bank and SGSS Russia (Rosbank). By its own estimates, VTB holds a significantly greater level of assets in custody than SGSS Russia. Such estimation is backed up by the responses with VTB accounting for around 70% of responses based on weight of respondents and a marginally lower proportion in terms of absolute numbers.
What gives VTB perhaps a greater presence in the market is that VTB responses include a larger number of corporate entities and fewer financial institutions with only 9.1% for both asset managers and mutual fund managers responding.
This diversity is also reflected in the size of respondent in terms of Assets under Management (AUM) with 47.6% holding up to $100 million in AuM and 11.9% of respondents holding over $5 billion in AuM.
In spite of holding such an established presence in the region but coming in second place to VTB, SGSS consider themselves well placed to benefit from the significant reforms about to take place across the Russian market.
Andy Duffin, head of sales, UK & emerging markets also suggests that the amount of reform that the Russian market will shortly see puts the firm in a stronger position going forward.
“The Russian market is undergoing a significant amount of reform with the introduction of automated pre matching and now the corporate action reform taking effect on a gradual implementation basis.
“This means that the whole process of paying dividends is far more automated and while this is going on the market becomes less complicated.
According to the survey results, 22% of Soc Gen’s respondents were made up by a broker or dealer, group which was not represented in VTB’s respondents. More than two-thirds of VTB’s responses came from other clients – reflecting corporate and other firms that are not specialist asset managers or large asset owners such as pension funds.According to Duffin, SGSS maintains a wider interest in not only the Russian market but also the entire Central and Eastern European region.
Viewing SGSS’s position in Croatia and Romania, the bank made up 66% and 55% of responses respectively, something Duffin says is part of wider SGSS plans in the region.
“We are not just interested in Russia, it’s the CEE region as a whole typically speaking. As a securities services provider we offer services across the majority of the CEE, so we are talking about Russia, Romania, Czech Republic, Poland, Bulgaria, Croatia, Slovenia and Serbia.
“SGSS sees growth in the emerging markets and we aim to be one of the most dominant providers in sub-custody services for the international community across the CEE, said Duffin.”
In taking a wider overview of the survey from the issue of priorities, an important point to take out of the survey was that reputation and commitment was deemed the second most important priority behind only relationship management and client service.
Perhaps this concurs with the thoughts of Duffin who suggests that there is a tendency in the central and eastern European region to favour a more regional approach in its services.
“The international community favours regional providers and the indigenous single market banks tend to be less attractive to international institutions.
“With the change in regulation and increased focus upon risk we believe that the international community will look towards strong organisations from a balance sheet perspective and a credit rating perspective, said Duffin.”
Despite a relatively immature custody market in the Russian space, considering nearly half of respondents were in the small category of holding less than $100 million in AUM, overall performance in the region was strong.
Even with the region excluded from the 2015 survey, the fact that all respondents scored better than 6.40 suggests that domestic custody service provision is a market that can deliver.
Whether such high scores can be maintained in the future remains to be seen, but initial figures are encouraging.
Global Custodian has requested comment from VTB and will update accordingly.
GC Survey results: Soc Gen and VTB vie for Russian custody dominance
With the GC survey showing great progress in the Central and Eastern European (CEE) region, we look at two of the main players in the region and there take on how Russia stands with the sensitive nature of market progress.