Mainland banks eye Luxembourg as euro hub
Yuan loan portfolios in the grand duchy up 35pc from year earlier to 72.8b yuan in first half.
Luxembourg is rapidly growing as a channel for Chinese financing and investments flowing into the European Union.
China's direct trading of its currency with the euro, which began on September 30, will boost Luxembourg's role as a renminbi hub, said Nicolas Mackel, chief executive of Luxembourg for Finance, the agency responsible for promoting Luxembourg as a financial centre.
"This decision will encourage investors who use the euro as a base currency to directly trade in renminbi, since it will lower transaction costs. Thus, RMB business volumes in European RMB centres such as Luxembourg are likely to increase," Mackel said.
Renminbi loan portfolios in Luxembourg rose to 72.8 billion yuan (HK$92 billion) in the first half, 35 per cent more than the 53.8 billion yuan in the second half of last year and more than double the 29.3 billion yuan in the second half of 2012, according to official Luxembourg data.
Yuan deposits held by banks in Luxembourg rose to 67.2 billion yuan in the first half from 64.0 billion yuan in the second half of last year, it said.
This year three Chinese banks have announced plans to open their European headquarters in Luxembourg: Agricultural Bank of China, China Merchants Bank and Bank of Communications.
"They will join Bank of China, ICBC and China Construction Bank. So we will soon host the six largest Chinese banks here," Mackel said.
"Chinese banks use Luxembourg as their European hub. They appreciate Luxembourg because of its stable social and economic environment. Chinese companies use Chinese banks in Luxembourg to invest into Europe," he said.
Stephane Karolczuk, Hong Kong head of Arendt & Medernach, a Luxembourg law firm, said: "There is clearly a trend towards more Chinese banks establishing their EU headquarters or a foothold in EU in Luxembourg. Luxembourg offers Chinese banks an EU passport, which allows non-EU banks to open offices and conduct business operations in all EU member states once they have established a subsidiary in Luxembourg."
Chinese foreign direct investment in Luxembourg grew to US$8.98 billion in 2012 from US$5.8 billion in 2010, according to the United Nations Conference on Trade and Development.
Some of this investment is re-invested in other EU countries, said Karolczuk. "Chinese companies ... want to take advantage of the business environment of Luxembourg and the EU passport to invest in the EU and tap the EU market. From that perspective, Luxembourg is their gateway to Europe, just as Hong Kong is European companies' gateway to China."
There are a number of Chinese banks and firms in the pipeline preparing their first foothold in the EU by opening an office in Luxembourg, said Karolczuk without disclosing details.
Luxembourg is the largest renminbi securities settlement hub in the EU, with 690 billion yuan of securities settled in the first half, more than the 635 billion for the whole of last year, according to official Luxembourg data.
Holders of yuan securities mainly originate from Asia, namely Singapore (30.1 per cent), Hong Kong (28.2 per cent) and Macau (21.3 per cent).
"[With) Luxembourg being the major hub for international renminbi business in the euro zone, its attractiveness for Chinese investors is likely to increase in the future," Mackel said.
The People's Bank of China allowed yuan to be traded directly against the euro in the interbank foreign exchange market from last Tuesday.
Toh Han Shih