Yuan deposits in Hong Kong are likely to hit more than 1 trillion yuan (HK$1.24 trillion) by the end of this year, bolstered by a scheme in which firms in Qianhai can borrow yuan from banks in the city, Hang Seng Bank says.
The pool of yuan deposits in Hong Kong rose 5.6 per cent last month from November to 603 billion yuan. It has surged from less than 100 billion yuan in 2009 and peaked at 627 billion yuan in November 2011.
The decrease since then may be due to reduced speculation on the appreciation of the yuan.
Joanne Yim, the chief economist of Hang Seng Bank, said: "Hong Kong's offshore yuan deposits could grow at a faster pace, reflecting an expected rebound in cross-border trade settlement flows and potentially higher deposit interest rates as banks compete for yuan deposits.
"We expect the percentage of deposits in yuan will top 25 per cent in 2015 from less than 10 per cent at present."
By that time, the yuan was expected to replace the US dollar as the most popular foreign currency for Hongkongers to put their savings in, Yim said.
Banks in Hong Kong, however, have yet to fully capitalise on the huge yuan deposits, as only 79 billion yuan, or 13 per cent of the deposit pool, was lent out by the end of last year.
In the city's banking system as a whole, the ratio of loans to deposits is about 80 per cent, according to the Hong Kong Monetary Authority.
Local companies and individuals are reluctant to borrow in yuan, as the currency is not commonly used in the city. In most cases, corporate borrowers will swap the yuan back to Hong Kong dollars or other currencies.
Fifteen banks in the city were granted permission this week to offer a combined 2 billion yuan in loans to companies in Qianhai, an experimental economic zone jointly developed by Shenzhen and Hong Kong.
Ngan Kim-man, the head of yuan business strategy and planning at Hang Seng Bank, said: "Allowing Hong Kong's banks to lend money across the border to the companies in Qianhai will help to broaden the demand for yuan loans."
The Hong Kong government is pressing hard to take the lead in the offshore yuan settlement business, hoping to leverage its large yuan deposit pool. However, new competition is mounting, as Singapore, London and Taiwan are also in line to launch pilot schemes, alongside mainland cities such as Tianjin and Shanghai.
Yim said: "I will not be surprised if the list [of cities] continues to grow, as it is an integral part of facilitating full convertibility of the yuan.
"It will become more and more competitive in the offshore yuan business, but Hong Kong, as an international financial hub, has never been short of competition."