Dec. 9 (Bloomberg) -- Hong Kong’s Treasury Markets Association will invite banks to post their own lending rates for yuan in the city on its website as part of the efforts to develop an offshore loan market in the Chinese currency.
“In order to promote transparency and pave the way to developing an official reference rate in offshore renminbi, TMA will invite a few banks to post their own offer rates on TMA’s website,” the association said in a statement on the Asia- Pacific Loan Market Association’s website today.
The lack of a floating reference rate over which to price offshore yuan loans in Hong Kong is inhibiting the market’s growth. The London interbank offered rate, set daily by the British Bankers’ Association based on data from banks reflecting how much it would cost them to borrow from each other for various periods of time, is used as a benchmark for more than $350 trillion of financial products worldwide.
APLMA chairman John Corrin said in August the association had been holding meetings with the TMA and the Hong Kong Monetary Authority to try and develop a benchmark rate. Likely to be called ‘CNH Hibor,’ the floating reference rate would mimic Libor in construction, drawing rates every morning from about 14 banks in Hong Kong to gauge an average cost of interbank renminbi borrowing in the city, Corrin said.
The so-called Dim Sum loans signed to date in Hong Kong have been priced off individual bank’s renminbi prime lending rates. “The money and foreign exchange swap markets are not yet liquid and deep enough to provide a credible rate fixing in this new offshore currency,” TMA said in the statement.
“TMA is conscious of the demand for the fixing as well as the fact that once the rates are published, they will be used in legal contracts determining the fixings on derivatives and loan rates,” the statement said. “TMA needs to ensure we have an indisputable fixing when launched and we are of the view the market is not in this position yet.”
--Editors: Katrina Nicholas, Pavel Alpeyev
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