[ S U R V E Y
|
A G E N T
B A N K S
I N
E M E R G I N G
M A R K E T S ]
Saudi Arabia
HSBC
HSBC has owned this market since the days when it was not
only the largest and fastest-growing stock market in the middle
East, but also the most frustrating. None of its foreign clients
could access it: Investment in equities was restricted to Saudi
nationals and Gulf Co-operation Council (GCC) states.
Those restrictions made it hard to shine here, but it did mean
the bank was ideally positioned when the government decided
to open up the markets. HSBC is collecting much higher scores
now than it did then, precisely because it is able to guide net-
work managers acting on behalf of fund managers allocating to a
$500 billion-plus equity market.
Saudi Arabia is one market where the bank did better this year
than last. In fact, were it not for under-performance in the pre-
dictable area of pricing (an issue in 2017 as well) and on spreads,
HSBC would be pushing towards excellence in most service
areas and perfection in some.
Others
The opening of the Saudi market has created a natural oppor-
tunity for custodian banks and obtaining a licenced to operate
in the Kingdom became more urgent in June 2018, when MSCI
admitted Saudi Arabia to its emerging markets index, prompting
an immediate spike in the Saudi stock exchange all-share index.
Admission to the emerging market index was the reward for
a series of reforms by the Saudi stock exchange (Tadawul) and
the Saudi Capital Markets Authority that have made it easier
for international institutional investors to access the market
(as part of a broader strategy to diversify the Saudi economy
away from oil). Qualified foreign investors (QFIs), based on the
Chinese precedent, were allowed to start trading Saudi stocks
in 2015.
But that was only a first step towards opening the market to
foreign investors, designed to encourage the domestic share-
holders that dominate the market to be more active and to create
buyers for more and better research into the companies listed on
Tadawul.
Following the success of that first step, the Saudi authorities
have lowered the minimum assets under management to attain
QFI status from SAR 18.75 billion to SAR 3.75 billion; allowed
QFIs to buy funds and bonds as well as equities; lifted the cap on
shareholdings by a single investor from 5% to 10%, and foreign
ownership of a single stock from 20% to 49%; shifted the mar-
ket on to a T+2 settlement timetable to align it with internation-
al norms; and – importantly – authorised custodians to enter the
market.
A number of banks with a custodial presence or ambitions in
the region are reported to have obtained or be seeking capital
markets and banking licences. This is a measure of the value
of the opportunity and can over time be expected to lead to a
shake-up of custody provision in Saudi Arabia, and potential-
ly the wider MENA region too. Standard Chartered received
responses; however, they were too few in number from which to
draw firm conclusions. This may well change in the year’s ahead
as more foreign institutional investors enter the market.
WEIGHTED AVERAGE SCORES
HSBC Standard Chartered Bank
Share of validated responses (%) 67% 33%
Relationship management 5.50 n/a
Market Average Global Average
5.74 5.30
Client service 6.43 n/a 6.65 5.56
Account management 5.21 n/a 5.48 5.14
Asset safety 4.62 n/a 5.53 4.60
Risk management 5.40 n/a 5.79 5.50
Liquidity management 5.47 n/a 5.75 5.14
Regulation and compliance 5.67 n/a 5.94 4.84
Innovation 4.67 n/a 5.48 4.75
Asset servicing 6.39 n/a 6.45 5.52
Pricing 5.51 n/a 5.86 5.28
Technology 5.68 n/a 5.86 5.41
Cash management and FX 5.90 n/a 6.19 5.42
Total 5.53 n/a 5.85 5.23
80
Global Custodian
Winter 2018