Global Custodian Spring 2019 | Page 63

[ S U R V E Y | A G E N T Continuing currency restrictions mean foreign investment in Icelandic government bonds is minimal and purchases of equi- ties listed on the Nasdaq Iceland exchange actually decreased in 2018 – even though they are exempt from the special reserve requirements imposed on foreign currency inflows. Íslandsbanki The market leader here has attracted more responses than its lo- cal rivals, but in only one question in four do the average scores rise above the ordinary. This is not surprising, since there is not that much business to service. In fact, the sheer complexity of the residual controls is a deterrent to investors, diverting the attention of relationship managers (RMs) into explaining what their clients cannot do rather than what they can. “RM very patient and reactive to explain the specificities of the market on the cash side,” as one network manager puts it. “Very helpful!” Arion Bank Arion did not attract many responses, and the scoring by those that did respond shows a wide spread from weak to very good. A client grumbles that the bank is “systematically late in respond- ing to yearly due diligence questionnaire.” Another notes that, “Generally speaking, the capital control restrictions in place since 2008, and recent changes since 2016 in particular, has slowed down the market activity with our customers very seri- ously…Until the regulation of offshore assets is either completely lifted, it is expected that the situation cannot evolve from an international investor perspective.” Landsbankinn Landsbankinn has provided sub-custody services in Reykjavik for more than 20 years but, judging by the lack of responses this year, the pickings are thinner than ever. LATVIA Even if the OMX Riga index has under-performed the OMX Baltic Benchmark of the Nasdaq regional market in the last few years – that has been powered mainly by the performance of Tallinn – it still had a great run to the beginning of 2018. It has trended down-to-sideways since then, but the country has une- quivocally recovered from the spectacular bust which followed the boom years between accession to the European Union (EU) in 2004 and the financial crisis of 2008. Since 2017 investors here have had the additional benefit of settling in a single Baltic central securities depository (CSD). Nasdaq merged the Estoni- an, Latvian and Lithuanian CSDs into Nasdaq CSD, creating the first cross-border depository to be regulated under the Central Securities Depositories Regulation (CSDR) of the EU as well as settling trades via the TARGET2-Securities (T2S) platform run by the European Central Bank (ECB). As it happens, the Nasdaq CSD is based in Latvia. SEB The Stockholm-headquartered bank has a substantial retail and corporate banking presence here dating back to its effective take- over of Latvijas Unibanka in the wake of the Russian financial crisis of 1998. It gets a handful of responses from inbound clients, who between them record a much-improved performance by B A N K S I N F R O N T I E R M A R K E T S ] SEB in Latvia. It would have been better still were it not for a continuing perception that the bank is the luxury option. The detailed scores (see page 78) point to ways of delivering value to clients that do not depend on fee reduction alone, ranging from greater sensitivity to the cash, collateral, credit and capital needs of clients to faster and simpler opening and closing of accounts. Swedbank Swedbank, inheritor of the former Hansabank Latvia franchise here, attracted too few responses from foreign clients for a rat- ing. This is disappointing, since local regulations, membership of the euro and the Nasdaq infrastructure make it easy for them to invest. LITHUANIA OMX Vilnius has tracked the OMX Baltic Benchmark in- dex closely since 2016. The economy is growing healthily by European Union (EU) standards – GDP growth averaged 3.5% a year between 2011 and 2017. The Nasdaq Baltic market and the associated infrastructure add assurance as well as liquidity. Portfolio investment flows retain the volatile pattern of any emerging market, but they were positive in 2016 and 2017 (the more important 2018 data is not yet available). SEB SEB achieves a lower overall score here than it managed in 2018. The service area scores are also below its returns in the other two Baltic states, but this is a quirk of the limited number of responses, because most SEB clients are buying the Baltic mar- kets as a package. The vast majority of category scores remain in the Good range (5.00-5.99). What is familiar from Tallinn and Riga is that SEB is regarded as a relatively expensive provider. That matters in smaller markets, because transaction costs eat returns, which have been more than respectable in Lithuania in recent years. Swedbank Swedbank has inherited the Lietuvos Taupomasis Bankas franchise in Vilnius, which Hansabank acquired here in 2001. Its focus in the local market is primarily retail. Though it has foreign as well as Lithuanian business clients – and the Swed- bank Lithuania balance sheet sports a not insignificant volume and value of assets in custody – the small number of responses suggests that the bank is not servicing a large volume of inbound portfolio flows on behalf of global network managers. What scores were received indicate room for improvement in cash and foreign exchange, and a demand for a denser and more mutually rewarding relationship. As its competitor has also found in the Baltic markets, clients would also like keener pricing. NORTH MACEDONIA Those bold enough to invest here have enjoyed rewards. The index of the top 10 listed shares (MBI 10) has climbed continu- ously for five years and reached an all-time high in February this year. The Macedonian Stock Exchange (MSE), whose founda- tion dates back as far as 1995, is courting more inbound invest- Spring 2019 globalcustodian.com 63