OCBC Launches Offshore Renminbi Accounts
Monday, March 14, 2011

Oversea-Chinese Banking Corporation Limited (OCBC Bank) has launched two offshore renminbi deposit products to meet increasing demand from sophisticated investors who are looking to diversify their investment portfolios.

Offered only to customers of OCBC Premier Banking, the minimum balance required for both deposit products - the Renminbi Call Account and the Renminbi Time Deposit - is CNY250,000 (USD38,000). The Offshore Renminbi Time Deposit returns 0.25% per annum for a one-month placement, 0.35% per annum for a three-month placement and 0.68% per annum for a six-month placement. The Offshore Renminbi Call account returns 0.20% per annum.

The renminbi is not yet a freely tradable currency. Therefore, to make a deposit into, or withdraw from, OCBC offshore renminbi accounts requires a conversion from, or into, a non-renminbi currency. The bank said that customers will have to take into account both the interest rate and the foreign exchange rate to determine the net return on the deposits. OCBC warns that returns derived from a high interest rate can be negated if the foreign exchange rate is not competitive.

OCBC Bank is aiming these accounts at investors with natural cash flows in USD as analysts expect offshore Renminbi to appreciate against the USD. "With better foreign exchange rates when buying or selling offshore Renminbi, the amount of interest earned in the deposit accounts will be better protected when converted into another currency," the bank said.

Nicholas Tan, Head of Global Wealth Management at OCBC Bank commented: “This product best suits those with significant USD holdings who take the view that offshore renminbi will appreciate against USD in the long-term. Such an investor would also be looking to diversify his currency exposure. Clearly, when it comes to foreign currency deposits, risk is involved – and this product is suited for those with a stronger risk appetite. It is important that customers not only understand the costs, but also the economics and politics revolving around these two currencies, before investing in these types of products.”

Tommy Xie, Economist, OCBC Bank, added: “Offshore renminbi is expected to appreciate against USD by 3 to 5% in 2011. We expect renminbi appreciation to play a role in managing external driven liquidity, boosting imports and overseas investment for China. As for SGD (Singapore dollar)/offshore renminbi, we expect it to remain relatively flat in the next few months. However, from the long-term perspective, we expect offshore renminbi to outperform SGD."

OCBC Bank said that it is planning to launch other offshore renminbi investment options within the month, including Offshore Renminbi Dual Currency Return, Equity Linked Convertible Investment and Offshore Renminbi-denominated Bonds.

While the renminbi is not yet fully convertible, the Chinese government has taken several steps to incrementally liberalize the currency in recent months. Earlier this month, the State Administration of Foreign Exchange (SAFE) confirmed that it will look for a developing use of China's currency in capital account transactions this year. While it will continue its close monitoring of capital account flows, it is now to be expected that convertibility of the renminbi for cross-border investment purposes will mirror the use of the currency for cross-border trade settlement, which is already much further developed. It was reported that it is also proposed to extend the trial of renminbi-denominated cross-border trade settlement to all cities in China by the end of this year. The central bank has said that such settlement reached a total of more than RMB506bn (USD77bn) in 2010. In addition, by the end of the year, more than 67,000 Chinese companies had joined the yuan settlement programme.

Inevitably, much of the growth in offshore renminbi business is taking place in Hong Kong, and progress towards loosening controls has been seen in various areas, including cross-border trade settlement, deposits, bond issuance and the introduction of financial products. Last month, the territory's Finance Secretary, John Tsang, announced in his budget presentation that further measures will be taken to foster growth in offshore renminbi trade.

The cross-border RMB trade settlement handled in Hong Kong reached RMB370bn (USD56.3bn) last year. At the end of 2010, total RMB deposits in Hong Kong exceeded RMB300bn, which has increased by four times when compared to some RMB60bn a year ago.

As part of Hong Kong’s attempts to consolidate its position as a platform to raise international capital and enhance the competitiveness of its asset management industry, Hong Kong’s RMB bond market will be further developed. As at end-January, there were a total of 31 RMB bond issues with an issuance size of about RMB74.4bn. The range of issuers has expanded from Mainland financial institutions to multinational non-financial institutions. Tsang says that Hong Kong will continue to encourage overseas enterprises to issue RMB bonds in Hong Kong, solicit more Mainland enterprises to issue bonds in Hong Kong and seek the expansion of channels for enterprises to invest in the Mainland the RMB capital raised in Hong Kong. In addition, the government plans to optimize the RMB clearing platform to attract more enterprises to use Hong Kong’s RMB settlement services.