China
China is set to launch a digital platform for loan trading which it hopes will foster a secondary market for syndications.
The China Banking Regulatory Commission (CBRC) is spearheading the creation of an online system that will allow banks to more transparently trade registered syndicated loans, reported state-backed newspaper China Daily on Wednesday (August 29), citing the vice chairman of the CBRC.
The platform, called a “loanlink”, will launch in the Jiangsu province in September and then expand to include rest of the country in the fourth quarter.
The China Securities Regulatory Commission (CSRC) launched a consultation regarding proposed changes to ownership rules regarding mainland securities firms on August 24.
Under the revised rules, overseas investors would permitted to hold a bigger stake in mainland firms from the current limit of one-third but to no more than 49%.
They would also shorten the length of time a securities firm need to be in operation before it is allowed to expand from five to two years.
The CSRC is accepting feedback until September 22.
China’s National Association of Financial Market Institutional Investors (Nafmii) announced on July 7 that the country’s first non-financial institutions could sell asset-backed securities (ABS) in the form of medium-term notes (MTNs).
These institutions, reportedly state-owned firms Nanjing Public Holdings Group, Ningbo Urban Construction Investment Holding, and Shanghai Pudong Road & Bridge Construction, will use a combined Rmb2.5 billion (US$392.6 million) quota to fund planned infrastructure projects and repay loans.
Hong Kong
On August 20, Hong Kong Monetary Authority announced that short-dated debt above specific credit ratings will be able to benefit from a tax concession in profits under section 14A of the Inland Revenue Ordinance (IRO).
It means that under the profits tax concession scheme, interest income and trading profits derived from eligible debt securities are entitled to concessionary tax rates.
HKMA's new guideline is expected to benefit the commercial paper market but not other types of short-term debt such as a certificate of deposit (CD). This is because CDs are already free of withholding profit tax for investors.
The minimum require rating for short-dated debt to qualify is F3 from Fitch, P-3 from Moody’s and A-3 at Standard & Poor’s.
Long-dated debt above specific credit ratings has benefited from tax concessions on profits since 2006. For a long-dated debt instrument, the minimum rating required is the lowest investment grade rating ‘BBB-’ from Fitch Ratings, S&P, and ‘Baa3’ from Moody’s.
India
The Reserve Bank of India has extended new rules for securitisation to non-banking financial companies (NBFCs) after introducing the guidelines for banks earlier this year.
Under the new rules, NBFCs will have to retain at least 5% of any securitisation on their own balance sheet and must have held assets for securitisation on their balance sheet for six to 12 months before they are used to prevent them from originating loans just for securitisation.
Originators will also no longer be able to offer credit enhancements for assets which means transactions will carry lower ratings than before the new regime came into effect. The changes also put more emphasis on investor knowledge of the transactions with NBFCs required to ensure prospective investors have access to information regarding the credit quality and performance of the underlying asset including the cash flows and collateral.
Finally, the NBFCs are prevented from re-securitisation of assets and also synthetic securitisations. They echo earlier guidelines published in regards to banks and securitisation.
India’s government is loosening rules on credit enhancements on rupee bonds to stimulate issuance by local businesses.
Until this change, foreign entities were only allowed to guarantee rupee bonds issued by infrastructure companies as a way to boost investment flows into the troubled sector. But the government is now widening the facility to all Indian companies, according to the Wall Street Journal, while shortening the minimum maturity of such bonds to three years from seven. The facility is set to provide cheaper funding to these companies compared with banks.
Indonesia
Indonesia’s central bank has loosened rules on foreign-exchange transactions in an effort narrow the current-account deficit and support the rupiah.
Bank Indonesia said in August that it will allow foreign-currency hedges of as short as one week, cutting the time frame from three months. It also raised the minimum interest paid on deposits by 25 basis points (bp) to 4%.
The government is trying to narrow its current-account deficit, which widened to US$6.9 billion in the second quarter from US$2.9 billion recorded in the previous quarter.
Philippines
The Bureau of Treasury is revising rules for the bond market trading between tax-paying and tax-exempt institutional investors.
As it stands, for regular government securities, separate instruments for a single tenor are issued for tax-withheld and tax-exempt investors, and trading is only allowed among holders of the same tax-category. This is set to be abolished.
In preparation for the change, which is due to take place towards the end of the year, the government will conduct a liability management exercise allowing existing investors to swap their holdings into a new bond with a single price.
The new bonds issued will be tax neutral and non-restricted. The Bureau of the Treasury will reimburse tax-exempt institutions for the tax component of the bond.
Tax-exempt institutions include government owned and controlled corporations (GOCCs), educational bodies and the Church.
South Korea
The Financial Services Commission has said the Korean Federation of Banks will start posting a three-month Cost of Funds Index (COFIX) from November.
The new rate, which is to be published weekly, will replace the three-month certificate of deposit (CD) rate which has been used as the reference rate for short-term loans.
The benchmark CD rate has come under fire in recent months after the country’s Free Trade Commission began investigating at least nine local brokerages for allegedly fixing the rate, which is calculated by averaging their mid-range of bid and ask spreads on the traded CDs. The CD rate was higher than benchmark government bond yields, which resulted in higher payments on home loans for bank customers.
Taiwan
Taiwan will be become the next offshore renminbi centre after signing a Memorandum of Understanding (MoU) with China.
Under the terms of the MoU, signed on August 31, banks in Taiwan will soon be able to conduct renminbi trading and a clearing bank will also be set up to facilitate trades in the Chinese currency.
Cross-strait trade settlement in renminbi is expected to be the biggest beneficiary following the agreement. What is less certain is whether Taiwan will be allowed to develop a greater suite of renminbi products such as dim sum bonds or instruments such as spot, forwards and interest rate derivatives.
Taiwan is also said to be discussing a currency swap agreement with China which would allow it to invest in the mainland’s bond market.
The MoU is due to take effect 60 days after the signing.
Thailand
Thailand’s Ministry of Finance has decided to revamp rules regarding primary dealers which could support secondary market trading and widen investor participation.
The MoF has named 13 new primary dealers for government bonds. Each institution is required to take up a 5% allocation of the each benchmark auction for bonds with maturities of three, five, seven and 10 years. They must also offer trading in the secondary market equal to 5% of the outstanding volume over a 12-month period. The performance of each primary dealer will be reviewed on a semi-annual basis.
The new system increases from eight the number of primary dealer and increases the minimum participation in auctions and the secondary market from the current 3%. The new rules and primary dealers come into force at the beginning of the fiscal year on October 1.
The thirteen institutions selected to be primary dealers from October 1 are Bangkok Bank, Kasikornbank, KGI Securities (Thailand), Krung Thai Bank, Siam Commercial Bank, TMB Bank, and the Bangkok branches of BNP Paribas, Citi, Deutsche Bank, HSBC, J.P. Morgan, Royal Bank of Scotland and Standard Chartered.