Hong Kong aims to be The One for the yuan
"In view of this major development, the upcoming HKIB 3rd Annual Banking Conference will focus on the opportunities and challenges arising from the growing yuan business," says Carrie Leung, chief executive officer of the Hong Kong Institute of Bankers (HKIB).
The conference will be held at the Hong Kong Convention and Exhibition Centre on September 27. What makes it different is that it is tailored around the local banking operating environment to address the sector's specific issues, combining macro views and practical elements.
"It is an important platform for senior and mid-tier management executives at banks to gather and exchange views and ideas," Leung adds. "This year's theme of Hong Kong as an offshore yuan centre also helps attract over 70 bankers from mainland China."
The conference covers several broad areas. Chief Secretary Henry Tang Ying-yen will discuss banking policy, while Hong Kong Monetary Authority deputy chief executive Peter Pang will provide an update on regulations. The head of business planning and strategy for Hong Kong at HSBC, Thomas Poon, will facilitate a panel discussion on the prospects of yuan business. And Ronald Arculli, chairman of the Hong Kong Exchanges and Clearing, will share his insights on the impact of yuan-denominated securities products on the global financial market.
Industry players are confident that Hong Kong is well-equipped to capitalise on the opportunities and to take on the challenges emerging from the growing yuan business. The city has well-developed legal and payment systems and supporting infrastructure to handle offshore yuan transactions.
"Hong Kong is the natural choice," says Dr Patrick Fung, chairman and chief executive of Wing Hang Bank. "We also have experience in clearing currencies other than the Hong Kong dollar. The city has been a clearing and settlement centre for the US dollar for many years."
Fung, who is also the chairman of the HKIB executive committee, sees the development of Hong Kong into an offshore yuan hub as the intermediate step in China's plan to make the currency fully convertible. Hence, growing yuan business is vital to the sustainable development of the city as a financial hub.
Most of China's international trade is settled in US dollars. When these transactions are eventually conducted in yuan and go through banks in Hong Kong, it is expected to boost yuan deposits and loans. "We can lend the [yuan] deposits and make a margin," Fung notes.
So far, Hong Kong is estimated to boast 500 billion yuan in deposits, with loans amounting to 11 billion yuan - around 2 per cent of total deposits. "The markets for deposits and loans and bond investment are limited at the moment," Fung says.
As the volume of yuan increases in local banks' deposit base mix, it will boost their balance sheets.
"When more international trade is conducted in yuan, more overseas banks will maintain offshore yuan accounts in Hong Kong and stimulate yuan deposits," Fung notes. "Overseas central banks may also hold offshore yuan. That is how an offshore yuan centre is established. When more people use yuan, more yuan deposits are generated. When Hong Kong becomes an offshore yuan centre, it will be easier for [the city's banks] to generate more profit."
Hong Kong banks can put more effort in promoting their yuan business among customers. They can advise clients trading with companies in China that there is opportunity to hedge their yuan position.
"Hong Kong banks have hedging products, such as non-deliverable forward contracts with foreign currencies. We also have interest rate swap for yuan. These are the derivative products offered to our clients to help them trade in yuan," Fung says.
Apart from the focus on offshore yuan business, the conference's afternoon breakout streams will tackle issues facing the banking sector's corporate and commercial business, retail and private banking, and new developments in risk management and operations.
Among the topics are recent regulatory challenges and marketing and promotion through smart phones. "Smart phone marketing technology is a global trend. Amid rising inflation and soaring costs, more banks have begun to use new technologies for promotion," Leung says.
Hong Kong's success rests on its well-maintained balance between flexibility and well-developed regulations. Its bank staff must also keep themselves updated on professional trends and new regulations.
To help update the industry on new developments, the HKIB recently published a book on banking services and professional ethics. It has also launched an Accredited Banking Practitioner qualification for current bank employees or individuals aspiring to enter the field, Leung adds.
HKIB 3RD ANNUAL BANKING CONFERENCE
Date September 27 (Tuesday)
Venue S421, Hong Kong Convention and Exhibition Centre
Theme Offshore RMB Centre: Reaching New Heights
- Improving the profitability of RMB business
- RMB internationalisation: Opportunities and challenges for HK financial markets
- Legal and regulatory issues of trade finance in China