Size Counts When Tiny Margins Rule
Tough competition, thin margins and the application of electronic technology are crucial themes in custody in Asia as in the rest of the world. With customers driving hard bargains on basic services, custodians are doing their best to persuade them of the benefits of a range of add-on services including performance and risk management tools. In the process, smaller local custodians are losing ground. Gill Baker reports
"Survival of the Fittest - and the biggest" must surely be the mantra of the Asian custody business even more so than for the rest of the region's banking industry. Custodians worldwide are battling with wafer-thin margins on their traditional safe-keeping and clearing and settlement business, but for Asian bankers there is the additional challenge of convincing ultra price-conscious regional clients of the benefits of value-added services.
"This is a volume business, and it is a system automation oriented business. Volume actually means a lot. Pricing is important, and if you are big, you will become even bigger," says Darwin Doo, head of custody sales for Standard Chartered Bank. That said, custody volume growth in Asia is outpacing that of the rest of the world, but it still only represents a small portion of total global transactions.
KK Tse, Asia managing director for State Street Bank and Trust, emphasizes the two-tier nature of the custody business in Asia. On the one hand there is a shrinking band of sub-custodians concentrating on safe-keeping and custody for in-country investment. On the other there are the global custodians such as State Street, Citibank, Bank of Bermuda, Chase, Deutsche Bank, Bank of New York and Northern Trust helping large institutional clients, predominantly from the US and Europe, investing in Asia.