Taiwan banks enter China’s bond market
14 Sep 2012
The Hong Kong subsidiaries of five Taiwanese banks gained approval to enter mainland China's inter-bank bond market this week, continuing the flood of recent developments in cross-straits financial ties and the internationalisation of the RMB.
China's central bank opened the door to Bank of Taiwan, China Trust Bank, Mega International Bank, Hua Nan Bank and Fubon Bank, giving a fresh fixed-income option for Taiwan's leading financial institutions after yields on the island's 10-year bonds dropped to record lows this summer.
While the mainland bond space has been open to selected foreign entities in Hong Kong since 2010, political reasons stymied approvals for Taiwanese banks in the early days, and the long-awaited green light reflects encouraging progress in cross-straits financial relations and RMB internationalisation, says a Shanghai-based fixed income specialist with a foreign bank who was not authorised to speak to the media.
The People's Bank of China earlier this year approved several Taiwanese banks to set up branches on the mainland, and at the end of August inked a currency clearance MoU with the Bank of Taiwan, paving the way for the island to become the next hub for the offshore yuan trade. The agreement is set to take effect at the end of October.
"Many banks in Taiwan have been dashing for RMB deposits through their Hong Kong subsidiaries and offshore banking units," financial advisory Z-Ben Associates said in a research note. According to the Taiwan's central bank, the island's yuan deposits reached RMB16.1bn ($2.5bn) by the end of July, up 1.48% month-on-month.
Mainland bonds represent an attractive new investment option for this growing pool of funds accumulated through increasing cross-straits trade, and access to the market will allow Taiwan to better leverage a trade surplus with its neighbour. Hong Kong units of Taiwanese banks previously had to make do with putting their yuan to work in the lower yielding dim sum bond market, and the limited opportunities offered by RMB lending in the special administrative region.
Of the five banks granted access, Fubon has so far been the most active in the CNH business and is likely to take the biggest piece of the pie, said the Shanghai-based bond trader.
The outlook for the onshore bond space moreover has been brighten by other regulatory efforts to stimulate the market, with increasing interest from offshore since Beijing eased access restrictions at the end of July and started allowing investment in the inter-bank market under QFII.
Across the water from Taiwan meanwhile, Fujian's provincial capital of Xiamen is pushing ahead with its ambitions to become a financial centre for cross-straits trade, local media reported this week. Construction is about halfway complete of a RMB35bn financial services cluster intended to focus on cross-straits business and act as a springboard for Taiwanese companies to expand on the mainland.
The project is also hoped to provide a test bed for a much-anticipated trade settlement mechanism to handle the growing volume of cross-straits transactions - the value of trade between Taiwan and the mainland grew 10.1% last year to $160bn.
Author: Orlando Bowie