July 29, The Hong Kong Monetary Authority (HKMA), the city's de facto central bank, has relaxed some restrictions on local banks regarding position squaring with the renminbi clearing bank and net open position.
The HKMA issued new guidelines to local lenders on Thursday to allow them to consolidate the renminbi trading positions of banks outside the state city but within the same bank group for the purpose of position squaring with the renminbi clearing bank on a net basis.
Renminbi trading positions refer to renminbi positions derived from renminbi exchange transactions with customers under the renminbi cross-border trade settlement regime that meet the requirements set out in the HKMA circular of 23 Dec. 2010, the agency said in its statement.
The HKMA circular of 23 Dec. 2010 stipulates that all participating banks should restrict their renminbi net open position, whether net long or net short, to 10% of the size of their respective renminbi balance sheets (total renminbi assets or liabilities whichever is larger, excluding off-balance sheet items).
But the restriction was relaxed by allowing the exclusion of actual amount of investments under the Mainland Qualified Foreign Institutional Investors scheme, positions arising from renminbi bond market-making activities and net renminbi deliverable forward positions.
If the resulting net open position is still beyond the 10% limit, the participating bank concerned should approach the HKMA to discuss and justify the mode and scale of its renminbi business, it said.
The measures are supposed to enhance lenders' capacity in carrying out renminbi business in an orderly manner, the HKMA said.
Rise of the Hong Kong Renminbi (CNH) Market
Last June and July, China reformed the renminbi exchange rate regime by pegging the currency to a basket of currencies. Lifting the restriction on renminbi settlements for all countries has allowed Hong Kong enterprises to exchange renminbi without limits and make interbank transfers of renminbi.
According to a recent CCB International research note, the CNH has been a deliverable currency in the city since July 2010. Strong demand for offshore renminbi for the purpose of trade and investment is serving to maintain the spread between the CNH and the onshore renminbi as total daily transactions rose to $3 billion.
Hong Kong’s renminbi deposits climbed to RMB 550 billion by the end of the first half, up 76% from the beginning of the year, despite a month-on-month deceleration in June with only RMB 4.8 billion increase during the month, according to the HKMA.
The growth has mainly been driven by corporate deposits, which increased by about RMB 200 billion to over RMB 390 billion and accounted for 71% of the total. Renminbi deposits from overseas corporates with Hong Kong banks also saw a jump of 140% to RMB 69 billion during the period. Their share of the total went up from 15.8% to 17.6%.
The strong renminbi deposit base has facilitated the development of financial products in the money, debt and equity markets and reflected Hong Kong's growing strength as an offshore renminbi business platform and its capability in providing services to enterprises around the world.
Offshore renminbi bond issuances hit a record high of RMB 138 billion by the end of June, reflecting low borrowing costs in the offshore market despite the slowing renminbi initial public offering market, according to the CCB International research note.
Facing credit tightening and high fundraising costs in China, domestic enterprises are seeking offshore renminbi to fund their operations, a move that will have positive implications for Hong Kong's debt and equity markets, CCB International said.
Since July 2010, net renminbi trade settlement inflows have increased the size of the offshore renminbi liquidity pool, solidifying Hong Kong's status as a center for renminbi wealth management.
Cross-border renminbi settlements conducted through Hong Kong banks reached RMB 800 billion in the first half of the year, more than double the RMB 370 billion recorded in the whole of 2010. The amount accounted for more than 80% of all renminbi trade settlements in China, compared with 73% in 2010. The increase is attributed to China’s continued efforts to make the currency more international.
Development of renminbi financing products is also encouraging trade by giving rise to investment opportunities.
During the first half, 38 entities issued renminbi bonds amounting to RMB 42.7 billion in Hong Kong, surpassing the record of RMB 35.8 billion made by 16 issuers in full-year 2010. At the end of June, outstanding renminbi loans were up more than 5 times, at RMB 11 billion, from less than RMB 2 billion earlier this year.
Source:21cbh