Singapore snapping at Hong Kong's yuan heels

Business in the mainland currency is booming in Singapore, which aims to handle an amount equivalent to a third cleared in Hong Kong

PUBLISHED : Monday, 24 March, 2014, 4:45am
UPDATED : Monday, 24 March, 2014, 4:45am

Singapore may well be a latecomer to yuan business, but the city state is wasting no time in its catch-up efforts, with its yuan clearing volume expected to reach a third of that of pacesetter Hong Kong this year.

The Singapore branch of top lender Industrial and Commercial Bank of China, which was appointed as the sole clearing bank in Singapore in May last year, told the South China Morning Post that it expected its yuan clearing volume to reach between 25 trillion yuan (HK$31.1 trillion) and 30 trillion yuan by the end of the year. That compares with Hong Kong's volume of about 80 trillion yuan last year.

Hong Kong became the first offshore yuan trading hub in 2004, followed by London in 2011. Despite Singapore's late start in the trade, banks based in the city are keen to carve out a bigger slice of the global yuan market.

While some say a more volatile yuan with limited room for appreciation may dampen investor interest in yuan products, bankers in Singapore still have high hopes for this sector's ability to grow their business.

"There will be a great part for Singapore to play for [yuan] settlement. You will see more yuan-denominated products to come - bonds, securities, RQFII products, wealth management products, and structured products," said Zhang Weiwu, the general manager at ICBC Singapore.

The average clearing volume ICBC handles in Singapore is about 150 billion yuan per day, almost a third of the volume in Hong Kong, Zhang said.

In just seven months from late May, when ICBC started the clearing service, the volume reached about 2.6 trillion yuan by the end of the year, he said. In the first two months of this year, the amount swelled to 4.2 trillion yuan.

Building on this momentum, the Singapore Exchange is considering introducing yuan currency futures and trading on its China A50 Index futures in the third quarter of this year, in a bid to diversify the investment channels for the country's booming deposit base.

Singapore had more than 140 billion yuan of deposits as of July last year, far exceeding London's five billion yuan but well short of Hong Kong's 730 billion yuan.

Under a currency swap facility with China, Singapore was granted 300 billion yuan, the second-largest amount for offshore hubs, trailing Hong Kong's 490 billion yuan.

A currency swap facility allows central banks to exchange currencies with one another and the scheme also allows the Monetary Authority of Singapore to obtain yuan funding from the People's Bank of China and to provide it to local banks as an emergency source of liquidity.

"The clearing business is only part of what we do. Our status as the sole clearing bank means we also shoulder some of the responsibilities of China's central bank in the offshore market. All the Big Four banks on the mainland want this job, because this is associated with many other opportunities - interbank bond investment quota, co-operation with local authorities to develop yuan products, etc," Zhang said.

Lum Yin-Fong, the managing director of Cash and Trade at DBS, said: "A lot of transactions are still between Singapore and Chinese companies. We need really third-party transactions, so that the [yuan] truly becomes a trade currency."

In September last year, the yuan was the 12th most-used payment currency with a mere 0.86 per cent share of all global payments.

"Hong Kong is undoubtedly the big brother among the offshore centres now. But Singapore's yuan business is potentially huge given its position as a gateway to Southeast Asia and its huge trade linkage with China," Zhang said.