Almost half of Chinese banks in Hong Kong to focus on RMB internationalisation in 2018

Hong Kong will be the first and biggest beneficiary of the trend.

The KPMG report, titled ‘Review and outlook of Chinese Banks in Hong Kong’, analyses the development of Chinese banks over the past two decades. It features findings from a survey of 23 Chinese banks in Hong Kong, as well as interviews with 12 senior executives on their views on the opportunities and challenges facing the sector in Hong Kong.

The KPMG survey reveals that 46% of the surveyed Chinese banks in Hong Kong  indicated that cross-border financing will be the main focus for their RMB business in the next year, much higher than RMB exchange (27%) and loans (18%).

Surveyed bankers also believe that Hong Kong will be the first and biggest beneficiary of the trend, given its status as the largest offshore RMB market. The size of Chinese financial institutions in Hong Kong has grown significantly over the past 20 years–their total asset size was HKD 7,260 billion at the end of 2016, an increase of 660% from HKD 957 billion at the end of 1997; total asset in terms of market size grew to 39% from 11%t. Also, these banks accounted for 39% of the loan market in 2016, compared to 11% in 1997.

Edwina Li, Partner and Head of Financial Services Assurance, KPMG China, says, “Chinese banks in Hong Kong should actively expand and participate in offshore RMB business among non-resident clients, seize the opportunities emerging from the opening up of the capital market in the mainland, and actively engage in major initiatives such as the Shanghai-Hong Kong Stock Connect, Shenzhen-Hong Kong Stock Connect, and the Bond Connect.”

Bankers also suggest to further open up and integrate the RMB markets, for example, allow Chinese banks in Hong Kong to access the inter-bank market in the mainland to borrow and lend RMB within certain amounts. It would partially help to address any potential problem of insufficient market depth, due to a limited pool of offshore RMB funds, the report notes.