ICBC in talks with S'pore banks to develop yuan products

ICBC in talks with S'pore banks to develop yuan products

    By Linette Lim
    POSTED: 05 Jul 2013 8:32 PM

The Industrial and Commercial Bank of China (ICBC) is in talks with Singapore's three local banks to develop yuan-denominated interest rate and exchange rate products. The bank also said significant progress on yuan internationalisation may take about 50 years to realise.

SINGAPORE: The Industrial and Commercial Bank of China (ICBC) is in talks with Singapore's three local banks to develop yuan-denominated interest rate and exchange rate products.

The bank also said significant progress on yuan internationalisation may take about 50 years to realise.

This downplays bullish expectations over the speed of yuan adoption in offshore yuan centres.

ICBC, one of the big-four Chinese state-owned banks, said large-scale usage of the yuan outside China is decades away.

To move the process along, it said there needs to be a wider range of offshore yuan-denominated investment products, as well as synchronisation between the onshore and offshore yuan markets.

Luo Xi, senior executive vice president at ICBC, said: "Right now, there is an offshore exchange rate and offshore interest rate for the yuan that differs from the domestic rates. People are using that as an arbitrage opportunity, so we need to coordinate these rates."

He also said that another way to speed up the process of yuan internationalisation is for more offshore yuan settlement centres to be opened.

But analysts said this need could dissipate with time, because it is widely expected that the Chinese currency will become convertible after 2015, and by then, no interim offshore centres will be needed.

Mr Luo was speaking at a conference organised by DBS in Singapore.

ICBC runs the sole yuan-clearing facility in Singapore, making the city-state only one of four jurisdictions in the world that can clear offshore yuan transactions.

Ng Nam Sin, assistant managing director at Monetary Authority of Singapore, said: "There are close to, I believe, 4,000 Chinese companies who have a presence in Singapore conducting trade and investments between South Asia and China. These companies have their banking relationships with banks in Singapore, so Singapore plays a very important (role as an) intermediation centre for trade finance, for investments."

Still, a number of issues could pose a challenge to yuan internationalisation.

These include the stability of China's financial system.

Andrew Sheng, president of Fung Global Institute and chief adviser to the China Banking Regulatory Commission, said: "If you were to look at household leverage in China, it's actually very low. If you look at the leverage of the government, it's not low but it's relatively low to the advanced countries and even to the comparatives within Asia. Where the leverage has occurred has been in so-called corporate sector, which would include the local government financing platforms."

The recent interbank liquidity crunch in China also revealed fragility in its financial system.

Standard & Poor's said it was a signal that the Chinese central bank will not "endlessly tolerate" reckless lending by some banks. 

- CNA/xq

- wong chee tat :)