More offshore renminbi please, says Deutsche Bank

Moves to bolster offshore renminbi liquidity will aid in the bid to kick of a renminbi IPO market in Hong Kong but, trades need to be settled in the currency to help the market flourish, bankers at Deutsche Bank argue.

  • 16 Mar 2011
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News the Bank of China Hong Kong (BoCHK) is providing a renminbi repo facility in Hong Kong should encourage more renminbi-related products but more trades need to be settled in the currency to encourage this process, argue Venky Vishwanathan and Daniel Mamadou, co-heads of Deutsche Bank’s capital markets and treasury solutions (CMTS) business in Asia.

“Given the amount of renminbi we are talking about and the potential size of the [renminbi] IPOs, you need obviously to be able to fund in renminbi. Currently the offshore repo market is not a liquid one, but we expect that to change,” Mamadou told

The comments came as many speculate BoCHK’s new service could be to provide liquidity for investors looking to invest in the renminbi initial public offering (IPO) market in Hong Kong, which is widely tipped to kick off soon.

Questions have been raised over whether the Rmb300 billion (US$45.5 billion) of renminbi deposits in Hong Kong will be big enough to fund both new equity issues and the growing offshore renminbi bond market.

BoCHK’s news could help quell that anxiety—along with news the Hong Kong Exchange & Clearing’s cash security arm will help investors in the buying and selling of offshore stocks denominated in renminbi—by linking with partner banks that have access to the currency.

But ultimately more of the Chinese currency needs to flow into Hong Kong. “It requires changes in trade flow and reserve currency mentality .This happens gradually, although growth to date has been quite exceptional” said Vishwanathan.

Transaction volume of China’s cross border trade settled in renminbi has sharply increased. Bank of China’s total volume n January reached Rmb40 billion (US$6 billion), already a quarter of the total it settled in all of 2010, for example.

China’s cross border trade settlement in renminbi reached Rmb510 billion for 2010, and Hong Kong reportedly handled Rmb370 billion in trade settlements in the same period, with the volume increasing consistently month after month.

With that in mind Deutsche Bank believes it is now well positioned to tap that huge increase in corporate transaction banking, the pair said.

The bank went through a fairly hefty consolidation of its corporate and investment banking business last year, which included headcount cuts. One of the key outcomes of this process was the creation of its CMTS division.

CMTS essentially looks after financing activities, debt and loan capital markets, corporate derivative sales, and more traditional corporate banking such as cash management and trade finance.

The majority of these decisions will be made by a corporate’s treasury department, for which CMTS is specifically designed to cater. Any relating to M&A activity and equity raising is dealt with the firm’s equally new investment banking, coverage and advisory division.

Deutsche has appointed new ‘senior client executives’ and built teams around them to manage any needs that crossover product areas.

  • 16 Mar 2011

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