Growing interest among local firms
Banks in Singapore have seen a sharp rise in yuan-related business in the year since the Shanghai Free Trade Zone (FTZ) was launched to test trade and currency reforms.
Yuan activity has also been given an added boost with the more recent introduction of the Suzhou Industrial Park (SIP) where firms can operate under liberalised currency rules.
The Monetary Authority of Singapore released data last Friday showing that yuan deposits here reached 254 billion yuan (S$52 billion) in June this year, up 84 per cent from a year earlier.
An increasing number of Singapore banking clients are also taking up a wider range of yuan-related services, banks said.
Last September, China launched the Shanghai FTZ, announcing that firms operating there can borrow money directly from outside China and conduct cross-border yuan transactions.
This means that banks in Singapore can conduct yuan lending to companies in the FTZ, while companies in the park can issue bonds in Singapore and elsewhere.
Companies in the FTZ can also "sweep" their funds offshore - that is, out of China - to manage their cash more efficiently.
"Say you have surplus funds onshore in China, but offshore you have an entity, say a subsidiary, that is borrowing money.
"The bank can now act as an intermediary to bring funds out of China and pump it into your external unit," said Standard Chartered Singapore's head of financial markets, Mr Gary Tan.
Some of these reforms have been replicated in a few other special trade zones around China, including the SIP, launched in June this year.
Firms in the SIP, for example, can borrow money offshore and transfer it back to China.
"So companies with units in Singapore can raise funding in Singapore and then pass the loan into the SIP for further business development there," said HSBC China's head of payments and cash management, Mr Wong Kee Joo. "And companies want to do this because borrowing yuan in China is more expensive."
As a result of these developments, HSBC Singapore's trade finance business has doubled over the past year, he said.
StanChart said its yuan deposits in Singapore have tripled since June last year, while its yuan assets, such as trade loans and working capital loans, have doubled in the same period.
Furthermore, the range of yuan-related activities that companies are conducting has opened up, Mr Tan said.
"Initially yuan activity was very trade-related, then it become more about yield enhancement, and then now with the latest initiatives, it has more to do with cross-border financing and two-way sweeps."
Chinese banks with branches here have witnessed similar trends.
Bank of China Singapore said clients have started using yuan standby letters of credit to obtain Singdollar or United States dollar loans, altogether to the tune of US$2.5 billion (S$3.1 billion) outstanding.
"There are also some companies beginning to use our yuan letter of credit to purchase oil, with about 200 million yuan of such loans outstanding," a bank spokesman said.
ICBC Singapore, meanwhile, has completed 800 million yuan of direct cross-border lending from Singapore to the two pilot areas and the Tianjin Eco-City.
"So far, we have established several two-way yuan cash pools for Singapore firms to connect with their affiliate companies and we have conducted lots of intra-group lending for some well-known enterprises in Singapore," a spokesman added.
The uptake in yuan activity has also been a boon to Singapore's home-grown lenders.
At the end of the second quarter, DBS Bank's yuan deposits, both in Singapore and elsewhere, had risen 46 per cent from a year ago.
The bank has also been a big player in underwriting yuan-denominated bonds - it is the fourth largest underwriter of such bonds globally so far this year.
And as Chinese regulators continue to liberalise the currency, the bank is following suit with new products and services at every step of the way.
"When they said we could do trade settlements, we pushed out trade products. When they said we could set up accounts allowing foreign exchange convertibility, we created them," said the head of DBS China's institutional banking group, Mr Tan Teck Long.
"Every month there are some new developments and relaxation of rules.
"For example, in the FTZ, one of the latest is around nailing down the nuts and bolts to facilitate the conversion of yuan to other currencies via FTZ accounts so we will be watching that closely."
OCBC Bank did not share how much its yuan deposits and assets have grown, but said that it has seen a broadening in the scope of its yuan services.
"In the past, yuan-related activities were mostly current account-related business, such as trade settlement, which involves domestic trade payment and collections, and cross-border yuan settlement," said OCBC China's head of business banking, Mr Roy Tan.
"However, since the introduction of the SIP and the Shanghai FTZ, we have seen more business relating to capital account items, as companies are now able to manage their liquidity across the globe through yuan offshore loans, yuan cross-border cash pooling and free trade accounts."
But much of this activity is still being driven by Chinese companies and multinationals that have bases in Singapore and China, the banks said, though a rising number of home-grown firms are also starting to ask more questions about how to get in on the action.
"Some local firms have even shifted all their invoicing to yuan," HSBC's Mr Wong said, adding that take-up of the currency will only surge from here.
"When you look back at how Hong Kong first started as an offshore yuan centre versus where it is today, the amount of yuan products and services have grown exponentially.
"I expect the same here. I would envision more sophisticated levels of yuan products and services, and acceptance of the yuan among Singaporean companies will drive this."
StanChart's Mr Tan added that the bank has seen growing interest among local firms, even small and medium-sized enterprises, in how to use the yuan in their business.
One interesting development, he said, is that tourism-related companies are starting to seek information on how they could use the yuan to cater to Chinese tourists.