Hong Kong to Compile Yuan Interbank Rate Fixing on Loan Demand

Hong Kong’s Treasury Markets Association will start compiling an interbank interest rate fixing for offshore yuan in June amid rising demand for loans in the currency outside of China.

Hong Kong Monetary Authority will also relax yuan capital rules for local banks by scrapping a limit on net open positions and a minimum requirement for the lenders’ liquid assets in the Chinese currency, Chief Executive Norman Chan told reporters today at a press briefing in the city. Instead, the same rules that apply to other currencies will be applicable to offshore yuan, he said.

Currently, 13 banks including HSBC Holdings Plc and JPMorgan Chase & Co. publish their yuan interbank offered rates through the Treasury Markets Association each trading day. Today’s one-year yuan interbank rate ranged from 2.7 percent to 3 percent, TMA data showed. The new fixing will be based on contributions from 15 to 18 banks, TMA said in a statement.

“After having detailed discussions with the industry and having a trial offshore yuan fixing system in place for more than a year, the HKMA thinks that the timing is now mature for Hong Kong,” Chan said. The fixing system “will greatly promote the yuan lending market and the development of financial products that are related to interest rates,” he said.

The tenors of the yuan interbank fixing system will range from overnight to one year, he said.

‘Spearhead’ Swaps

Hong Kong holds the world’s biggest pool of yuan deposits outside China as the city is designated as a hub to promote the currency’s usage in global trade and finance. The Qianhai district of Shenzhen, a city that borders Hong Kong, was picked as the testing ground for cross-border yuan loans in which 15 banks based in Hong Kong provided about 2 billion yuan ($324 million) to companies in January.

The fixing will “support the further growth of the offshore renminbi loan market by providing a reliable benchmark for the pricing of loan facilities,” Peter Pang, chairman of the TMA executive board and deputy chief executive at the HKMA, said in a statement today. “The fixing will also spearhead the development of the offshore RMB interest rate swap market.”

Outstanding yuan loans in Hong Kong totaled more than 70 billion yuan in October 2012, compared with 31 billion yuan at the end of 2011, according to HKMA data.

Hong Kong’s deposits and certificates of deposits were over 810 billion yuan in March, an increase of about 30 billion yuan from the previous month, Chan said. The city’s banks handled 830 billion yuan of cross-border trade settlements in the first quarter, a 45 percent increase from a year earlier, he said.

To contact the reporters on this story: Stephanie Tong in Hong Kong at stong17@bloomberg.net; Fion Li in Hong Kong at fli59@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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