HSBC pitches for renminbi usage

BRITISH banking giant HSBC sees the Philippines embracing the renminbi (RMB) as a currency of international settlement, investment and reserve management in the next few years as Chinese regulators move towards full convertibility of the currency.

In a press briefing on Wednesday, HSBC global head of RMB internationalization Vina Cheung said the Chinese currency may overtake the Japanese yen as the 4th most widely used currency for global payments by the middle of this year. Citing the latest independent data, she said RMB was now the fifth most extensively used global currency after the US dollar, euro, British sterling and the Japanese yen.

The momentum is increasing as China is further opening up its capital accounts, Cheung said.

While tight regulations had restricted the use of RMB as an international currency in the past, there has been a big surge in usage since 2009 as the use of RMB as a currency of trade had been fully liberalized. This means that any company with import and export license in China can now use RMB to settle trade transactions without gnawing on their tax rebates, she said.

Being a leading foreign bank in mainland China, HSBC is pitching to be the bank of choice for corporate and individual clients dealing in RMB, whether in buying goods from or exporting goods to China or even in making investment for wealth management, said HSBC senior vice president Mimi Concha.

“With China being the second largest economy in the world and the Philippines’ top importer and second largest trading partner, it’s inevitable that clients will start thinking about RMB,” Concha said.

Cheung said the right reforms were in place to widen the usage of RMB, noting that the use of the Chinese unit had long been “undermined” and that Chinese authorities were thus making it part of their agenda to “rebalance their currency versus their economic power.”

HSBC Philippines chief executive officer Wick Veloso said that for Philippine companies with operations in China and wanting to raise funds for expansion, he said the issuance of RMB-denominated offshore bonds – referred to as “dimsum” bonds – would be a possibility. This is especially if there would be big asset acquisitions in mainland China that would require immediate funding, Veloso said.

In a global survey made by HSBC, about 57 percent of respondents expect to increase their business activity in China but only 22 percent are currently using RMB as their settlement currency, Cheung said. Of those who do use RMB, Cheung said 77 percent have realized “financial and business relationship benefits” when they settle transactions with Chinese counter-parties, she said.

One such benefit is a potential discount on pricing. For instance, an exporter who sells to overseas parties will source from domestic manufacturers and will have to provide for foreign exchange margins. These margins are usually not transparent to buyers. As such, Cheung said buyers would usually request for a pricing in RMB, thereby leading to discounts.

At present, Concha admitted that the use of RMB was not yet popular among large Philippine corporations even as the hype on the internationalization of the currency started in 2009. However, she said HSBC had received a lot of inquiries on time deposits because interest rates on RMB were higher than those on US dollars. RMB-denominated time deposits currently offer interest rates of between 2 to 2.5 percent versus nearly zero interest rates for US dollar deposits.

On external trade, Concha noted a pipeline of corporations with importation requirements from “EPC” – engineering, procurement and construction – contractors.

“It’s at a very early stage,” she said. But as RMB becomes fully convertible in the next two to three years, HSBC officials are upbeat on the increase in its higher usage as a currency of trade, settlement and reserves in the Philippines.

“RMB is growing in our books,” added Rona David, HSBC senior vice president and head of global payments and cash management.