Yuan loans in Hong Kong may triple this year as the currency becomes more globally accepted in trade and finance, according to Bank of Communications Ltd., China’s fifth-largest lender by market value.
Outstanding yuan loans may rise to almost 60 billion yuan ($9.5 billion), from 19 billion yuan as of Sept. 30, Xu Chengfa, the deputy general manager of the Hong Kong branch, said in a Jan. 18 interview. Standard Chartered Plc Chief Executive Officer Benjamin Hung last month predicted 100 billion yuan.
Hong Kong deposit rates in the Chinese currency tripled in 2011 as credit tightening in China spurred demand for funds from mainland companies. The Hong Kong Monetary Authority, the de-facto central bank, relaxed capital rules for lenders this week to boost the yuan’s availability as loan demand surged.
“This year will be the golden era for yuan loans in Hong Kong,” said Xu. “We see great potential. Chinese banks have the competitive advantage, with a better understanding of the business environment and policies.”
China is trying to promote the use of the currency in global trade and finance, designating Honk Kong as the major offshore yuan centre. The government has awarded licenses to 21 mainland-based companies in December to start up yuan-denominated funds in the city based on the Qualified Foreign Institutional Investor program. The target was to raise 20 billion yuan that could be invested in Chinese securities.
“The yuan QFII program has helped us to attract more yuan deposits,” Xu said. “Yuan deposits in our banks are still rising since the start of this year.”
Slower Yuan Appreciation
Prospects the currency will appreciate at a slower pace this year than in 2011 are easing concern among borrowers about their ability to repay loans, according to Xu.
The yuan will strengthen the least since 2009 as Europe’s debt crisis hurts exports, according to the most-accurate forecasters. China’s currency has dropped 0.4 percent to 6.3185 per dollar since the end of December, after strengthening 4.7 percent last year, according to the China Foreign Exchange Trade System. In Hong Kong’s offshore market it gained 0.7 percent to 6.2970, according to data compiled by Bloomberg.
The yuan will appreciate 2.7 percent in 2012, said Andy Ji, a strategist in Singapore at Commonwealth Bank of Australia who was the top forecaster for the currency in the past six quarters, according to Bloomberg Rankings.
The six-month interbank rate was 2 percent yesterday, up from 0.78 percent a year earlier, after reaching a record 2.9 percent on Dec. 21, according to data compiled by Bloomberg.
The HKMA boosted checks on local banks lending activities in relation to China last year, Nelson Man, an executive director said at a press conference in the city on Jan. 18. The authority saw no systematic risk, Arthur Yuen, the deputy chief executive officer, said separately.
“Yuan lending is gaining momentum because the currency is more popular globally and more companies are using it to settle trade,” said Xu. “Yuan loans also make sense as the yuan exchange rate tends to be relatively stable, which means the currency risk is low.”