PH expected to embrace renminbi, says HSBC

MANILA, Philippines–British banking giant HSBC sees the Philippines embracing the renminbi (RMB) as a currency of international settlement, investment and reserve management as Chinese regulators move toward the full convertibility of the currency.

In a briefing on Wednesday,  HSBC global head of RMB internationalization Vina Cheung said the Chinese currency might overtake the Japanese yen as the fourth most widely used currency for global payments by the middle of this year.

Citing the latest independent data, RMB is now the fifth-most widely used global currency after the US dollar, the euro, British sterling and the Japanese yen.

The momentum is increasing as China is opening up 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 or 2010 as the use of RMB as a currency of trade had been fully liberalized.  This means 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 with the RMB, whether buying goods from or exporting goods to China or investment for wealth management, said HSBC senior vice president Mimi Concha.

“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 use of RMB, noting that the use of the Chinese unit had been “undermined” and that Chinese authorities were now making it 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 likely 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 use RMB, Cheung said 77 percent had realized “financial and business relationship benefits” when they settle transactions with their Chinese counterparts,” she said.

One such benefit is a potential discount on pricing. For instance, she said an exporter who sells to overseas parties will source from domestic manufacturers will have to provide for foreign exchange margins and these margins are not transparent to buyers.  As such, she 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 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 are higher than US dollars.  On external trade, she 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, Cheung is upbeat on the increase in its 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.

RMB-denominated time deposits currently offer interest rates of between 2 and  2.5 percent versus nearly zero interest rates for US dollar deposits, she said.