London underlines offshore RMB credentials

By:
Anuj Gangahar
Published on:

London’s role in the global RMB market grew substantially last year, with business volumes and the number of renminbi products provided by London-based banks on the up, according to a new report.

China is pushing internationalization of the renminbi hard, seemingly even more so under new leadership, and several offshore RMB centres are building momentum.

The acknowledged offshore leader remains Hong Kong and its unique position means that will remain the case, but beyond Hong Kong the race to attract business from China is on.

Singapore is making progress as an RMB centre, starting renminbi clearing last month, and a host of venues across the globe – including Taiwan, London and New York – are likely to complement Hong Kong’s central role as they grow in their own right.

The report on London’s progress in the RMB market, commissioned by the City of London Corporation (CLC) and conducted by Bourse Consult, shows that during 2012 there was strong growth in the use of RMB by corporations after extensive marketing of renminbi services by UK based banks.

Import and export financing totalled ¥33.6 billion, double the figure for 2011. The volume of letters of credit and other loan guarantees grew 13 times to ¥4.7 billion.

Strong levels of growth were observed across the institutional and interbank market. Large increases were noted in volumes of a full range of deliverable forex instruments. Spot RMB trading volumes increased in total by 240% throughout 2011, reaching a daily average of $2.5 billion.

The report looked at the volume of RMB business in London for calendar year 2012. Twelve banks, which are estimated to cover approximately 85% of the RMB market in London, participated in the survey and provided data on the renminbi retail banking market, the corporate banking market, and the institutional and interbank market.

Mark Boleat, CLC policy chairman
On publishing the report, Mark Boleat, CLC policy chairman, said: “The City of London has been aiming to build a long-term sustainable market to support the internationalization of the RMB, and we have worked hard to further engage with the Chinese and Hong Kong authorities.

“This has involved increasing awareness of RMB products and services in London, and in continuing to see London’s RMB business volumes rise.

“The announcement in February that the Bank of England and the People’s Bank of China are working on the details of an RMB swap agreement has been a significant event, which will give greater confidence to market participants, boost the already strong growth of London’s RMB business volumes, and support mutually beneficial trade and investment between our two countries.”

Elsewhere, Deutsche Bank recently completed its first RMB debt offering in Taiwan with a RMB1.1 billion self-led deal. The bond is spread across two tranches, a three-year bond at 2.45% and a five-year callable bond at 2.65%.

This represents the first RMB bond issued in Taiwan by a foreign organization, the largest-ever RMB-denominated Formosa issuance, and the first RMB Formosa bond with a call feature. The bond is listed on the Gre Tai Exchange in Taiwan, meaning Taiwanese retail investors are able to directly invest in the bond.

And late last month, Deutsche Bank also completed the first Singapore dollar/offshore renminbi (SGD/RMB) spot trade to be cleared in Singapore, after the Monetary Authority of Singapore’s announcement that RMB clearing in Singapore would be live as of May 27. The trade was executed on behalf of a Singapore-based commodities company.

In addition, Deutsche has now begun live pricing for offshore renminbi versus local currency pairs across all of its onshore Asian locations – Hong Kong dollar, Indian rupee, Indonesian rupiah, Korean won, Malaysian ringgit, Philippine peso, Singapore dollar, Taiwan dollar and Thai baht.

David Lynne, head of fixed income, currencies and commodities, Asia at Deutsche, said: “Roughly 30% of China’s total trade volume is conducted with Asia ex-Japan. Direct local currency/RMB pricing will help encourage increased RMB-denominated trade settlement by facilitating corporate hedging of RMB exposure, unlocking yet more potential for the continued globalization of the RMB.”