Standard Chartered Sees Hong Kong Yuan Loan Surge Next Year

Yuan-denominated lending in Hong Kong may jump fivefold to 100 billion yuan ($16 billion) next year because of tighter funding in other currencies, Standard Chartered Plc (STAN) said.

Commodities companies and medium-sized Hong Kong manufacturers are among those that need yuan-denominated financing, Benjamin Hung, the bank’s chief executive officer for Hong Kong, said in an interview yesterday.

Availability of Hong Kong dollars for lending has narrowed, with banks’ loan-to-deposit ratio in the currency rising to 85 percent at the end of October, from 74 percent a year earlier, according to the Hong Kong Monetary Authority. Chinese Vice Premier Li Keqiang pledged in August to bolster Hong Kong’s position as a center for the offshore yuan trade.

“If one currency is tight, people will tend to borrow in another currency,” Hung said. “That is why we see a very good increase in demand for yuan loans. That is a good alternative.”

Outstanding yuan loans in Hong Kong reached 19 billion yuan as of the end of September, according to the city’s de facto central bank. Asked whether loans could reach 100 billion yuan in 2012, Hung said it “shouldn’t be difficult” given demand from companies and financial institutions.

“With deposits of more than 600 billion yuan in Hong Kong, yuan loans are a good way for companies to raise funds for yuan” foreign direct investment, K. C. Chan, secretary for financial services and the treasury, told reporters in Hong Kong today. Many yuan-based investments rely on bank loans, and lending in the Chinese currency will grow, Chan said.

Bond Sales

The development of yuan lending has been lagging behind that of yuan-denominated bonds. Sales of Dim Sum bonds, securities denominated in the currency, have more than tripled this year to about 148 billion yuan, according to Bloomberg data.

“Market expectations on RMB appreciation have moderated since September,” Mirae Asset Securities (HK) Ltd. analysts Stanley Li and Patrick Pong wrote in a research report yesterday. “The development should accelerate Hong Kong’s RMB lending markets and bode well for local banks,” they wrote, using the Chinese abbreviation for the currency.

Yuan lending started to pick up in the second half of this year as companies began to take advantage of the city’s foreign exchange market, Hung said.

“Companies can borrow RMB and easily swap to U.S. dollars or whatever currency they need,” Hung said. “This makes RMB more usable and lendable,” he said.

Yuan loan growth at BOC Hong Kong (Holdings) Ltd. (2388), the yuan clearing bank in the city, may have started to accelerate, according to Mirae. The bank has been processing loans related to yuan foreign direct investment since China in October set rules to allow investment using funds raised in the currency offshore.

-- With assistance from Sophie Leung. Editors: Nathaniel Espino, Russell Ward

To contact the reporter on this story: Stephanie Tong in Hong Kong at stong17@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net

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