The Asset Magazine

Asian build-up

The Asset July / August 2009 by Rodney Diola

As part of its global strategy, senior management at the bank’s head office in Paris decided to create an international department for cash management, expanding its cash management coverage to Asia and North America. The trigger was simple: BNP Paribas is already one of the leading cash management banks in Europe and many of its clients have been expanding their operation abroad, especially in markets such as China and India.

 

 
Kua: Cash management revenues doubled in two years  

Kua Soo Tat, head of cash management for Asia at BNP Paribas, says the group’s cash management business in the region has considerably scaled up, with business last year doubling compared to two years ago. The bank’s key clients in the region, he admits, are many of the MNCs that it has been serving in Europe, but many Asian clients too with considerable exposure in Europe. Their needs are straightforward: “They want to make sure that their cash balances are kept within an internationally rated bank and that, at the same time, they are working with a bank that has wide geographic coverage to help them in the collection.” 

 
Kua says the strategy of BNP Paribas has been to leverage on the latest technique such as Swiftnet and partner with the most competitive domestic banks to deliver a wide range of domestic cash management services to its clients while BNP Paribas provides the pooling and other regional overlay requirements so clients can obtain an integrated and efficient control of their accounts. 
 
Securities servicing is an area where BNP Paribas is naturally strong, with the group boasting US$5 trillion worth of assets under custody as of March this year. The group’s securities servicing business in Singapore kicked off nearly two years ago after it received a license to operate as a trustee and the first services it rolled out were on corporate trusteeship and fund administration. The group’s securities servicing business has made headway in the region since April this year when the Monetary Authority of Singapore granted it a wholesale banking license which allowed it to offer securities services of domestic and global custody services.
 
“We now have the full range of custody services that we offer in Singapore and we’re definitely getting stronger in there thanks to the various agreements that we have,” says Bruno Campenon, managing director for BNP Securities Services in Hong Kong, adding that the group has established operations in Australia, Japan, and India.
 
Back in 2007, worldwide assets held under custody reached 5 trillion euro, their peak. 
 
That makes BNP Paribas Securities Services the fifth largest securities service provider in the world. The franchise administers around 6,000 funds across the globe, although, as Campenon notes, it has not been immune from the worst effects of the global financial crisis. 
 
While BNP Paribas is only starting to build its custody business in the region, it does not believe it is coming too late into the game. (It has been two years since another French bank, Société Générale, launched its aggressive push for custody business in the region, the key highlight of which was the partnership formed with  the State Bank of India to offer custody service in the second largest most untapped market in the region.)
 
 
  Campenon: We do in Asia everything that we can do in Europe
Campenon says a key strength of the group in Europe is its comprehensive service offering across the buy and sellside (including custody, administration, outsourcing and corporate trust businesses) which is being progressively rolled out in Asia. With the bank’s much expanded presence in the region, Campenon says that it can now do in the region everything that they have been able to do in Europe. “Take performance reporting, for example. It’s not as simple as just tracking performance against a benchmark and it requires heavy investment in platform and people if it is to be done well”. The bank, he points out, has already made a lot of investments in enhancing its global platform (including those for performance attribution and risk reporting), to take into account the fast evolving requirements of Asian clients. 
 
Campenon says that with the group’s banking licenses and operations in Singapore, Hong Kong and India, it is in a position to provide the same high levels of service to both European clients moving into Asia and domestic clients as well.” Still in mid expansion, the number of BNP Paribas Securities Services staff  in the region has already reached 800.
 
Third-party clearing
 
Campenon is particularly excited about the group’s third-party clearing business in Hong Kong. He concedes that transaction banking has not really picked up much in Asia, despite the fact that jurisdictions such as Hong Kong and Singapore have already begun to allow the practice. He is confident that this is where growth will come for the group in the next couple of years and that demand for the service will soon pick up, because of the flexibility it provides foreign brokers dealing with securities traded in the region. “Demand will explode,” predicts Campenon, “but only when people gain a better understanding of the value of the service, foremost of which is risk reduction. Risk has become a central point of attention for many market players and so demand can only grow rapidly in the future. We are in an environment where people have grown so risk-averse that they are looking for a reliable third-party to do their clearing.” He cautions, however, that in order to attract more market participants there should be more third-party clearers coming in. “If there are more actors you will get more clients to do it.” 
 
 
Chia: Strong impetus for SGX to offer third-party clearing   
Elizabeth Chia, who heads BNP Paribas global custody product service from Singapore, and who joined early this year from DBS Bank, says the city state is working hard to attract foreign brokers to trade in Singapore which is why there has been a strong impetus for the Singapore Exchange (SGX) to offer third-party clearing. Chia feels though that more work needs to be done before that could become a reality in Singapore. “Third-party clearing is a complex proposition and for it to happen, there must be remote dealing capability.” Chia says she has been in constant touch with SGX regarding its plan of making available remote dealing capability. “If a broker can directly access the remote dealing capability then they don’t need to have their proprietary system made available for remote dealing.”
 
The Monetary Authority of Singapore has prepared itself to handle the ramifications of third-party clearing. In essence, instead of brokers doing the clearing job it will be pushed to banks, and this means that these institutions will be taking more risk onto their books. Chia says the clearing process is getting more attention these days because of the uncertain environment and the recognition among players that they carry a lot of risk when it comes to the brokers they deal with, particularly the small brokers. She concedes, however, that this is not only true for small brokers but for all types of players. “It is good for them to hand over the risk to a third party so their clients can gain more security.”
 
Campenon says there are considerable challenges involved when brokers provide the clearing themselves. “On the financial side you need to block significant amounts of cash for the guarantee fund and you need to have sufficient liquidity, but if you tap a third party clearer you could outsource many of these requirements to your provider.”
 
Campenon describes their operations in Hong Kong and Singapore to be those of a real bank, which means they take deposits too and are engaged in lending. “We can offer completely segregated banking activity from our own balance sheet. Considering the banking umbrella that we operate under, we can offer securities lending and treasury-related services. The group’s business model services both the buyside and the sellside in the investing landscape and so mostly deals with the needs of asset managers and broker dealers.” 
 
Campenon says the group’s business benefits from BNP Paribas’s strength as a global investment bank, adding that the bank has a number of BNP Paribas centres around the region that they leverage to achieve critical mass. “We are fortunate in that, when we enter a market, we are not starting from scratch, and that we bring a lot of experience from day one.” In India, he adds, the group has operations in Mumbai and Chennai, the latter of which serves as a dedicated central hub for the Asian region. The bank is a clearing service provider for derivatives in Mumbai. Campenon says the group is active in Japan, servicing the liquidity needs of customers. “We have many Japanese clients who we serve in other parts of the world and these clients rely on us to provide liquidity or treasury funding solutions.” 

 



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