Singapore moves closer to getting yuan-clearing bank
Singapore has issued full banking licences to two Chinese lenders, moving it a step closer to getting a yuan-clearing bank that will let it compete more aggressively with Hong Kong in the growing market for yuan-denominated trades and financial products, Reuters reports.
Singapore said in July it had agreed to give two Chinese banks greater access to its retail market and that Beijing will in turn allow one of the two banks to become a clearing bank for yuan transactions.
"The Singapore branches of Bank of China and Industrial and Commercial Bank of China have commenced operations as full banks with qualifying full bank privileges with effect from Oct 5," the Monetary Authority of Singapore said on Wednesday.
"Implementation details on the RMB clearing bank will be worked out by the relevant agencies in Singapore and China in due course," the Singapore central bank added. RMB or renminbi is another term for the Chinese yuan.
Singapore, the world's fourth-largest forex trading centre and the main Asian base for oil and commodity traders, is widely believed to have the largest pool of yuan deposits outside of China and Hong Kong, according to industry players.
Citing a Singapore official, China's state-run Xinhua news agency said in June the Southeast Asian city-state has around 60 billion yuan ($9.54 billion) in yuan deposits, placing it way ahead of other financial centres other than Hong Kong.
DBS Group, Singapore's biggest lender, is a big player in the offshore yuan market with over 35 billion in offshore yuan deposits in Singapore and Hong Kong as of June 30. DBS last year executed nine offshore yuan transactions totalling 12.63 billion yuan, its spokesman said.
"I expect a clearing bank to be set up (in Singapore) before the end of the year," said Woon Khien Chia, head of local markets strategy of emerging Asia at Royal Bank of Scotland.
China has to date appointed yuan-clearing banks for Hong Kong and Taiwan, allowing companies in these two places to convert various currencies into yuan as well as offer yuan-denominated loans.
FIERCE COMPETITION
The competition to become a major centre for offshore yuan transactions has intensified over the past year as China shows an increasing willingness to loosen capital controls and promotes the use of its currency for trade settlement.
Besides Singapore, London is also keen to get a bigger slice of the yuan business.
But Singapore appears to be the bigger threat to Hong Kong, however, given its large yuan deposit base.
Dynasty Real Estate Investment Trust, backed by Hong Kong billionaire Li Ka-shing, is set to become Singapore's first yuan-denominated initial public offering. The Wall Street Journal reported on Wednesday that Dynasty has already begun taking orders for its planned IPO.
Singapore-based firms such as Global Logistics Properties and Singamas Container Holdings have also issued yuan-denominated bonds, also known as dim sum bonds.
Meanwhile, Chinese asset management firm Harvest Global Investments said it will launch its yuan-denominated exchange-traded fund (ETF) on the Hong Kong Stock Exchange on Friday. The Harvest ETF will be the first listed financial product to be traded in both yuan and Hong Kong dollars.
As for the Singapore market, the entry of the two Chinese lenders will present more competition in an already crowded retail space where the city-state's three banking groups DBS, Oversea-Chinese Banking Corp and United Overseas Bank are the market leaders.
A qualifying full bank licence allows recipients to open as many as 25 branches and offer services that include accepting retail deposits.
The three Singapore lenders will, however, get more scope to expand their China operations as part of the deal between Singapore and China in July.