Banks will now be able to net out their exposure in deliverable CNH forwards before calculating net open positions, which have until now been generally limited to 10% of the bank’s overall CNH assets or liabilities.
“The netting of open positions means that banks will be less concerned about hitting their limits,” says Robert Minikin, an analyst at Standard Chartered, in a note. “Banks will have more flexibility to accept CNH deposits as they can, using swaps, tap into the full exposure limits of the clearing bank.”
The use of swaps should make it easier for discretionary money on deposit in Hong Kong to be invested in dim-sum bonds, which should also lead to an increase in the implied yields in CNH forwards, says one trader that spoke to EuromoneyFXNews. These yields have been compressed due to an excess demand for CNH-denominated assets.
However, a second rule change allowing banks to consolidate eligible trade-related transactions offers less obvious benefits, say traders. Minikin says it will allow banks to net renminbi trade-related transactions across groups before squaring them with the Hong Kong central bank, giving group banks outside Hong Kong greater access to the onshore rate. However, others feel the new rule will not make a huge difference. “I guess they are hoping banks are going to consolidate, which may mean quotas are depleted less quickly,” says Francis Cheung, senior strategist for Asia excluding Japan at Crédit Agricole. “But I don’t think banks will do it."