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September 06, 2005

HK Banks Push For Expanded RMB Powers

Hong Kong's bankers expect a liberalization of the rules which last year allowed them to take RMB-denominated deposits from private individuals in Hong Kong, and to settle payments and credit cards in the mainland currency. This morning's SCMP quotes ICBC (Asia) Deputy General Manager Stanley Wong as saying:

"The second phase will be relatively small. The reforms are more likely to be a friendly gesture to show the central government's support for Hong Kong rather than a radical change"

"We expect there will only be small-scale changes and any profitability will be minimal," Mr Wong added.

Our recent conversations with bankers in the territory have revealed that they hope to get approval to take RMB deposits from corporates, and to make trade finance loans in RMB. Using their RMB deposits to fund loans instead of selling them back to the clearing bank (BOCHK) would permit banks to earn a much wider spread than they presently enjoy on the business. Even so, the impact on profitability in the near term would be mainly theoretical.

Note that no one we spoke with anticipates that HK banks with branches in the mainland will be allowed in this second phase to recycle their RMB deposits in Hong Kong into RMB loans out of their China offices. That is likely a minimum of 3-5 years down the road, in their view.

Posted by The Banker at September 6, 2005 10:45 PM

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