CNH Tracker-New HK measures likely to improve banks' yuan liquidity

Thu Jan 17, 2013 12:34am EST

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By Michelle Chen
    HONG KONG, Jan 17 (Reuters) - The Hong Kong Monetary
Authority (HKMA) introduced new measures this week to help banks
manage their offshore yuan positions, a move bankers say is
likely to increase usage of the yuan liquidity facility provided
by the territory's de facto central bank.
    They also hope the moves will help stabilise the offshore
yuan interbank lending and foreign exchange swap markets, which
banks and investors capitalise on to obtain the yuan and which
see surges of volatility from time to time when liquidity is
tight.
    "We've never used the facility before since the T+2
mechanism is too inconvenient for us to manage intra-day yuan
liquidity," said a treasurer at a bank in Hong Kong, "But we
will consider the tool now."
    In his view, though the instrument is still not as efficient
as the arrangements for U.S. dollar or Hong Kong dollar which
are both T+0, meaning banks can get funds on the same day of
their requests, the new arrangement already seems appealing to
him.     
    The HKMA said it has decided to shorten the notice period
required for authorized institutions participating in renminbi
business to request yuan funds from two business days (T+2) to
one (T+1) through its yuan liquidity facility from Wednesday.
    The facility, launched last June by the HKMA, makes use of a
400 billion yuan ($64.34 billion) currency swap arrangement with
the People's Bank of China.
    China still has relatively tight control over its capital
account, making it impossible for offshore players to obtain the
currency freely from the onshore market. The swap lines signed
by central banks thus offer a backup yuan pool.
    So far, among the 40 items defined by the International
Monetary Fund to evaluate the openness of China's capital
account, none of them is fully convertible yet, 36 items are
either basically or partly convertible and the rest are
non-convertible.
    "The shortened notice period is especially useful for us to
manage customer fund flows when they withdraw yuan deposits,"
said a banker in Hong Kong.
    Payments of deposit withdrawals are usually made on the same
day or the next day of customers' requests, which means T+1 will
help since banks can now get money from the HKMA the next day if
needed, he added.
    The central bank also permitted banks to use yuan currency
futures to offset their yuan net open positions (NOP), or bets
on the currency's future movement, in the opposite direction.
    In addition to the likely short-term liquidity improvement
for banks in Hong Kong, the offshore yuan pool will hopefully be
underpinned in the long term as well by China's ambition to let
individuals make investments overseas.
    China's central bank has made increased cross-border use of
the yuan one of its goals this year and will allow onshore
individuals to invest in overseas financial markets, also known
as QDII2 (Qualified Domestic Institutional Investor 2), a move
designed to strengthen the role of its currency abroad.
    
        
    WEEK IN REVIEW:
   * The Hong Kong Stock Exchange said it will continue to reach
out to international issuers and enlarge its renminbi product
suite, including bond index products and RQFII ETFs on bonds, in
its 2013-2015 strategic plan.
   * DBS launched ans RMB Index on Wednesday to track the actual
usage and acceptance of the yuan among Hong Kong companies and
their sentiment towards future yuan adoption. The initial
reading of the index is 54.9 in the fourth quarter of 2012.
   * China can increase by 10 times the current level of
investment quotas for Renminbi Qualified Foreign Institutional
Investment (RQFII) and QFII, Guo Shuqing, chairman of the China
Securities Regulatory Commission (CSRC), said on Monday at the
Asia Financial Forum in Hong Kong. 
   * China's SAFE had granted a combined quota of 67 billion
yuan under Renminbi Qualified Foreign Institutional Investor
(RQFII) scheme as of the end of 2012. ICBC Credit Suisse Asset
Management (International), CIFM Asset Management (Hong Kong),
and GF International Asset Management were added in the
programme in December.
   * Central banks increasingly want to hold yuan as trade with
China grows, said Gary Smith, the global head of official
institutions at BNP Paribas Investment Partners, who estimated
central bank holdings of yuan will increase to more than 10
percent over the next three or four years from about 0.5 percent
now. 
   * Brazilian bank Bradesco privately placed a three-year 350
million yuan bond, marking the third dim sum issue from the
LatAm financial institution. The deal was priced at par to yield
3.70 percent via BNP Paribas, according to IFR, a Thomson
Reuters publication.
    
    CHART OF THE WEEK:  
    Hong Kong's yuan deposits: link.reuters.com/dem35t
        
    LEAGUE TABLES    
    
    Book runner:          Proceeds (RMB mln):       # of issues:
    
    1.HSBC                       3,940.0                   11
    2.Standard Chartered         2,618.0                    6
    3.BNP Paribas SA             1,551.0                    4
    4.National Australia Bank    1,350.0                    2
    5.Agricultural Bank of China   976.7                    2

    * Thomson Reuters data as of Jan. 17. 
       
     RECENT STORIES:
CNH Tracker-New year off to a blazing start for dim sum
bonds 
    
More stories about the CNH market                 
Daily onshore yuan reports                        
Daily China money market reports                  
      
Offshore yuan rate    Onshore yuan rate  
Offshore yuan dealt Onshore yuan on CFETS 
Offshore yuan bonds 
  
THOMSON REUTERS SPEED GUIDES  
          
($1 = 6.2165 Chinese yuan)

 (Editing by Kim Coghill)
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