Bankers see more scope in yuan business reform
Hong Kong banks may enjoy a wider scope of yuan business in the second phase of mainland currency liberalisation, but the industry does not expect the new measures to enhance lenders' profitability.
'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,' said Stanley Wong Yuen-fai, a director and deputy general manager of ICBC (Asia).
'We expect there will only be small-scale changes and any profitability will be minimal,' Mr Wong added.
The local banking sector widely expected Chief Executive Donald Tsang Yam-kuen to raise the issue of allowing Hong Kong lenders to conduct more types of yuan business on his recent visit to Beijing.
Since February last year, Hong Kong banks have been allowed to conduct four types of personal yuan business - deposit, exchange, remittances and credit card - resulting in about 22 billion yuan of deposits.
However, they are banned from doing any yuan lending or yuan corporate client business. They also face restrictions such as a 20,000 yuan cap on the amount of exchange per day in each account, and 6,000 yuan per transaction for non-deposit account holders.
Last year, Financial Secretary Henry Tang Ying-yen outlined three aims for Hong Kong banks dealing in mainland currency business: being allowed to diversify their assets and liabilities in yuan; use the yuan in trading between the mainland and Hong Kong; and establishing Hong Kong as a yuan bond market.
Chan Tze-ching, Citigroup Hong Kong country officer, said it would be helpful if the central government relaxed some of the current restrictions, such as allowing corporations to open yuan deposit accounts.
'If banks can have more yuan deposits it would help to create a market with depth and help with future development,' Mr Chan said.
Removing the ban on corporate accounts would encourage shops and restaurants to open them and enable them to accept yuan from mainland tourists.
However, he did not expect the mainland authorities to approve a more radical move such as allowing yuan lending, which could add to competitive pressure on mainland banks.
'It is also unlikely that China will allow Hong Kong to conduct yuan initial public offerings or bond offerings as such business would require free convertibility of capital accounts of yuan,' Mr Wong said.
Another banker said the new measures to be announced should enable banks to generate more yuan deposits. He was also optimistic that if the second phase of liberalisation did not herald in yuan lending 'we can always put our hopes on the third stage'.
