Fitch: Hong Kong Banks Could Profit from Removal of Renminbi Cap

Fri Apr 26, 2013 2:26am EDT

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(The following statement was released by the rating agency) HONG KONG/LONDON/SINGAPORE, April 26 (Fitch) The lifting of renminbi-related regulatory requirements is positive for Hong Kong banks' growth and profitability prospects, as it removes a constraint on renminbi lending and could reduce competition for renminbi deposits, Fitch Ratings says. The Hong Kong Monetary Authority announced yesterday that it was removing the 20% renminbi net open position limit (which had previously been relaxed for some banks, subject to the HKMA's approval). The limit had restricted banks to maintain their renminbi net open positions within 20% of total renminbi assets or liabilities, whichever was the larger. It had also fuelled competition for renminbi deposits by banks active in trade finance. Lifting the cap could mean higher profit from renminbi lending as portfolios expand. However, we do not foresee a significant pick-up in renminbi loans over the next two to three years, so any benefit for Hong Kong banks from the change in regulation is only likely to be modest. Demand for renminbi loans from outside China remains subdued due to currency risks and restrictions on cross-border renminbi lending. The bulk of renminbi deposits areis yet to be deployed, with the system-wide renminbi loans/deposits ratio still low at 13% as of end-2012. A few banks, which operate at substantially higher levels, are normally active in short-term trade finance. We believe FX or liquidity risks are unlikely to rise substantially, as the banks are generally conservative in their approach. The regulator will still monitor the risks closely after having also relaxed the treatment of - and reporting requirements for - renminbi for liquidity management. Liquidity risk is also mitigated by a facility which the HKMA provides via a bilateral CNY400bn swap line with China. The settlement time was shortened by one day to T+1 in January to enhance the effectiveness of the facility. This helps to cushion the rise in liquidity risk as Hong Kong banks expand their renminbi franchises. Contact: Sabine Bauer Senior Director Financial Institutions +852 2263 9966 Fitch (Hong Kong) Limited 2801, Tower Two, Lippo Centre 89 Queensway Hong Kong Joyce Huang Director Financial Institutions +852 2263 9595 Cynthia Chan Senior Director Fitch Wire +44 20 3530 1655 Media Relations: Hannah Huntly, London, Tel: +44 20 3530 1153, Email: hannah.huntly@fitchratings.com; Wai Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. Applicable Criteria and Related Research Hong Kong Banks: China-Related Opportunities here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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