Standard Chartered, HSBC to Offer Higher-Yielding Yuan Products
July 20, 2010, 1:22 AM EDTJuly 20 (Bloomberg) -- Standard Chartered Plc and HSBC Holdings Plc plan to offer higher-yielding yuan products in Hong Kong after regulators agreed to encourage the city’s residents to invest using the currency.
Standard Chartered will offer yuan investments that link returns to the performance of an underlying index, the London- based bank said in a press release. HSBC, Europe’s largest lender, said in a statement it will have a product that offers an “enhanced yield” with interest payments tied to the performance of the currency, known as the renminbi.
The Hong Kong Monetary Authority and the People’s Bank of China yesterday signed an agreement allowing financial institutions to offer higher returns on yuan savings accounts in the city, which currently pay interest of less than 0.5 percent. Deposits in China’s currency in Hong Kong rose 4.7 percent in May to 84.7 billion yuan ($12.5 billion), HKMA figures show.
“A variety of RMB-based financial products is likely to emerge in Hong Kong, including deposits and loans, insurance, stocks, mutual funds as well as derivatives,” economists led by Joanne Yim at Hang Seng Bank Ltd. wrote in a report. “Renminbi trading in Hong Kong is likely to be more volatile, allowing policy makers on the mainland to gain experience before full- scale convertibility.”
Under the agreement, there will be no restrictions on companies buying or selling yuan in Hong Kong subject to banks holding enough of the currency, HKMA Chief Executive Norman Chan said at a press briefing. Restrictions on transfers of funds between banks and other financial companies were also lifted.
“More renminbi-denominated products will become available,” Chan told reporters yesterday. “This will further solidify Hong Kong’s role as a renminbi market platform and global financial center.”
Cross-Border Trade
China approved the use of the yuan to settle cross-border trade with Hong Kong in June 2009, part of a drive to broaden use of the currency and reduce reliance on the U.S. dollar. The popularity of this program has been limited by the availability of attractive investments using China’s currency.
Yuan settlement of trade between the city and China more than doubled to 7.2 billion yuan in May, compared with as much as 3 billion yuan in both March and April, the Hong Kong Monetary Authority said last month.
Hong Kong accounted for 75 percent of the total 70.6 billion yuan in local-currency settlement in the first half of this year, PBOC’s Deputy Governor Hu Xiaolian said. Yim expects total yuan trade settlement between Hong Kong and China will rise to 113 billion yuan by the end of this year from 53 billion yuan in the first half.
“China’s currency has a mounting role in international trade and investment,” Mark McCombe, chief executive officer for Hong Kong at HSBC, said in a statement yesterday. “We want to be quick off the mark to roll out new renminbi-denominated offerings.”
McCombe said HSBC will start to offer time deposit rates of 1.41 percent per year for customers starting July 20. The bank will also start to provide yuan exchange-rate-linked deposits from tomorrow.
Cross-border flows of yuan will remain limited by People’s Bank regulations, HKMA’s Chan said. The maximum amount Hong Kong residents can convert from their Hong Kong dollar deposit accounts per day is 20,000 yuan.
China Life Insurance Co. and BOC Hong Kong (Holdings) Ltd. will introduce yuan insurance policies through units in Hong Kong, the Hong Kong Economic Times said, citing the companies.
--Editors: Sandy Hendry, James Regan
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To contact the reporters on this story: Andrea Wong in Hong Kong at awong268@bloomberg.net; Saiyu Zhou in Hong Kong at Szhou40@bloomberg.net
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