Renminbi (RMB) corporate and treasury services in London

Transcription

1 Renminbi (RMB) corporate and treasury services in London City of London RENMINBI SERIES London offers an extensive range of RMB corporate banking services including: o Corporate accounts; o Term deposits; o Debit and overdraft facilities; o Online facilities; o FX services; o Payment and cash management; o Treasury management; o Commercial loans; o Trade services; o Letters of credit; o Supply chain services; and o Import / export financing. Terminology The renminbi is the currency of the People s Republic of China and the unit is the yuan. In this sense it is very similar to the use of sterling (the currency) and the pound (the unit). The terms yuan and renminbi are often used interchangeably in the West. Offshore renminbi (CNH) refers to any RMB that is used outside of mainland China. The term CNH was introduced to differentiate between the RMB traded offshore from that traded onshore (CNY). Although not an official ISO currency code, CNH was created by dealers to indicate FX trades in offshore RMB because it has a different spot rate and yield curves from onshore CNY. CNH is widely used as the name for the global offshore RMB market, which originated in Hong Kong. CNH is not an ISO 4217 currency code (SWIFT messages use only the ISO 4217 currency codes). Firms use the code CNH for offshore CNY that is being passed from the front office. Once the code CNH is passed to the middle or at times the back office, this non-iso currency code must be translated to CNY for settlement. The market practice uses CNY as the ISO currency code with the addition of structured code words to indicate offshore CNY (RMB). Corporate CNH accounts Opening a UK based RMB corporate account which can take CNH deposits, make CNH payments and receive transfers of CNH funds can be beneficial for many reasons. RMB accounts simplify carrying out regular transactions for trade settlement, conducting capital injections into onshore operations or for repatriating RMB proceeds out of your China operations. If you have both a trading and investment relationship with China, a CNH account in London enables you to avoid FX transactions and thereby reduce costs, whilst being able to conduct transactions in the London time zone. In addition, accounts can also form part of liquidity structures such as notional pooling / sweeping. CNH can be held in term deposit accounts, as structured deposits or simply in current accounts. Depending on the bank, CNH (offshore deliverable) accounts can be opened at the bank s branch in London or through the bank s offshore branch network. Alternatively, a deliverable

2 RMB non-resident account (NRA) can be opened with the bank s China branch. RMB NRA accounts are current accounts with cash withdrawals not allowed unless approved by the People s Bank of China (PBoC). The type of account opened would depend on the bank s capability and your needs. Many London banks offer corporate accounts in RMB. Term deposits RMB term deposits allow you to make a return on your RMB balances and provide you with a variety of deposit tenors for your specific business needs. RMB term deposits provide a higher yield on any excess liquidity compared to EUR/USD/GBP, whilst a flexible tenor, withdraw and rollover options can be selected according to your specific financing needs. Debit and overdraft facilities Some banks also offer debit and overdraft facilities, subject to bank approval. The benefit of this is that if you are short on RMB and have short term working capital requirements offshore for your RMB operations, an overdraft facility will be available to help fund that gap. Online facilities Many banks offer online banking facilities in RMB which can help with cash management and payments. Online facilities can help achieve real-time cash flow coordination, improve security and audit controls, and simplify reconciliation and risk management, making it easier to manage the use of the currency. At a basic level, this can be done by opening a RMB corporate account to facilitate direct online transfers. Alternatively, corporates without CNH accounts in London can use online spot FX services for converting sterling or dollars into RMB. Only a few banks currently offer online facilities, with more looking to do so in the future. FX services There are three main FX services which are offered in London: spot FX services, deliverable RMB FX instruments; and non-deliverable RMB FX instruments. You can use these services to take advantage of hedging facilities for RMB exposures to protect against rate fluctuations. Spot FX Spot FX trading is an agreement between a corporate and a bank to buy / sell RMB currency against another currency at an agreed price for settlement on the spot date. In 2013, the average daily volume of spot RMB FX traded in London was US$ 5.6 billion. Companies without corporate CNH accounts in London can use spot FX services for converting sterling or dollars into RMB, in order to carry out the required cross-border transfers of RMB funds. Companies that have repatriated RMB proceeds out of China without immediate RMB liabilities to pay off often conduct spot FX transactions to convert RMB into sterling or dollars to cover their costs denominated in those currencies. Deliverable and non-deliverable products Other RMB FX instruments include forwards, FX swaps, FX options, interest rate swaps and cross currency swaps. Deliverable and non-deliverable versions of these products are available. Non-deliverables are specific cash settled instruments for non-convertible currencies. RMB non-deliverable contracts are predominately based on the onshore (CNY) exchange rate and traded offshore specifically because trading in deliverable CNY is not possible offshore. As currency controls for the RMB have eased and offshore market liquidity has increased, there has been a shift from non-deliverable to deliverable products.

3 Treasury management Treasury management refers to the specific services offered by banks to medium / large corporations in payments, transfers and cash management. The RMB capability in this area is an extension of treasury management services in other foreign currencies and works in the same way. Liquidity solutions can optimise cash positions in RMB across different accounts / locations to minimise overdraft charges and can help to enhance yields. Cross-border RMB transactions have also been simplified since the PBoC released circular 168 in July As a result of this nationwide change, cross-border RMB settlement and lending has been simplified, giving corporates more flexibility and opportunitiies for efficiency savings. See the case study on cross-border RMB lending in this resource pack for more details. Payment and cash management Most banks offer payment and cash management services. Payments can be made in RMB to offshore counterparties to settle invoices, as well as collecting in RMB from offshore counterparties. Multinational corporations (MNCs) with headquarters in the UK can use the global cash pooling system offered by London-based banks to centrally manage cash within the group, instead of having subsidiaries in various countries separately managing their accounts. This centralisation allows for greater utilisation of cash, as it eliminates idle cash sitting in various locations across the world, improves investment returns and allows internal debit balances to be funded effectively. Incorporating CNH accounts into the global cash pool enables surplus RMB funds in the MNC s subsidiary in China to be brought to London for use by the group treasurer. Commercial loans Commercial loans include all loans in RMB made by banks to companies for their short term working capital requirements and day-today operations. These loans work in the same way as commercial loans in other foreign currencies. Trade services and letters of credit RMB based trade services can help facilitate trade settlement in RMB with China and allow clients to take advantage of RMB financing under letters of credit. Most banks offer trade services and letters of credit, with the annual volume of trade services for the year 2013 totalling 42.8 billion. The annual volume of letters of credit from London banks for the year 2013 was 4.2 billion. Supply chain services Supply chain services allow suppliers in China to use RMB finance facilities, which enables the overseas importer to continue to have access to uninterrupted supply of goods for their business operations. The benefits of the availability of these services are: access to a wider variety of suppliers in mainland China (which typically find it difficult to fund directly through their local banks); better financing terms; and improved working capital. Import / export financing Import / export activity is one of the most important services offered in the corporate banking market and includes import and export financing related directly to commercial activity. Most banks offer these services, which work similarly to financing in other foreign currencies. The annual volume of import / export financing for the year 2013 in RMB in London was billion.

4 Examples of renminbi corporate and treasury services in London Using any combination of these London based RMB products and services can potentially create cost savings and operating efficiencies, as well as helping to manage FX risk. How these RMB products and services can be used is demonstrated in the following examples. Example 1: Importing goods USD vs. RMB A UK based company imports goods from China and gets the onshore supplier to quote them a price in RMB and in USD. The Chinese supplier quotes RMB 90,000 or US $15,000 for the same goods to price in the FX risk the supplier will be exposed to on the USD/RMB exchange rate. The UK importer s bank is asked to price the difference to execute the FX transaction. 1. Paying in USD Assumption: Rates USD/GBP = 1.5 CNH/USD=6.5 CNH/GBP= Paying in RMB Assumption: Rates USD/GBP = 1.5 CNH/USD=6.5 CNH/GBP= 9.75 UK Importer UK Importer 10,000 9,231 Bank Bank $ $15,000 RMB 90,000 Chinese Supplier Chinese Supplier As shown above, to pay the Chinese supplier USD, the UK importer will have to sell the equivalent of US $15,000 value in GBP at market rates i.e. it will pay 10,000 and the bank will send $15,000 to the onshore supplier. By paying in RMB, the UK importer has saved 7.69% and has avoided the additional margin the Chinese supplier added to cover its FX risk.

5 Example 2: How do goods and funds flow for RMB settlement? The chart below shows how to settle payments in RMB for an export from mainland China to the UK counterparty. Goods flow Funds flow Chinese exporter Settlement bank Agent bank MAINLAND CHINA OFFSHORE Clearing bank 1 2 UK importer Participating bank As can be seen, there are two alternatives to make trade related RMB payments: 1. If your Chinese trading partner has a RMB account in mainland China (onshore), you can look to settle trade related transactions through an account maintained with your bank s mainland China branch or agent bank. These accounts are designated as Non-Resident Accounts or NRA. 2. If your Chinese trading partner has a RMB account outside of mainland China (offshore), you can make and receive payments to or from sterling or other currency or RMB accounts in the same way as it is possible for you to do currently.

6 Renminbi (RMB) corporate and treasury services in London Contacts For more information please visit or City of London RENMINBI SERIES