Hong Kong to Compile Yuan Interbank Rate Fixing in June

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 yesterday 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. Yesterday’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. Daily volume of interbank lending in the currency is at 8 billion yuan, according to the TMA. When calculating the offered rate, the TMA suggested omitting the three highest and lowest contributions, and calculating the rate by taking the arithmetical average of the rest.

‘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 yesterday. “The fixing will also spearhead the development of the offshore RMB interest-rate swap market.”

Outstanding yuan loans in Hong Kong totaled 85.8 billion yuan at the end of February, HKMA said today in a briefing document to the city’s legislative council. That compared with 31 billion yuan at the end of 2011, according to HKMA data.

‘Greater Transparency’

Hong Kong’s deposits and certificates of deposits were more than 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, 45 percent more than a year earlier, he said.

“By creating this benchmark we are giving greater transparency for borrowers and investors who want to tap into the offshore renminbi market,” said Anita Fung, chief executive officer for Hong Kong at HSBC.

Following TMA’s announcement, HSBC yesterday transacted its first interest-rate swap using the offshore yuan’s Hong Kong interbank offered rate, the lender said in an e-mailed statement. The one-year swap has a notional value of 100 million yuan and a forward start in July. A fixed rate of 2.64 percent was swapped against the three-month offshore yuan Hibor, according to HSBC.

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