(24 July 2015 – Singapore) ICBC Singapore executed its first onshore renminbi (RMB) bond pledged repurchase agreement among foreign institutions in the Chinese interbank bond market on 21 July.
The People’s Bank of China (PBoC) opened China’s onshore repo market for international investors in June, aiming to further liberalise the domestic Chinese capital market.
The RMB200 million (A$43 million) transaction completed by ICBC Singapore was hailed a breakthrough among existing RMB offerings in the local market.
ICBC Singapore is the country’s sole RMB clearing bank appointed by China’s central bank.
The repo bond marked a milestone contribution by Singapore’s financial sector to the strengthening of the global RMB capital pool.
As well as facilitating financing and investment projects in RMB for local banks, RMB repos will support the financial sector in tapping on the liquidity of the domestic Chinese capital market and lower liquidity risks for financial institutions.
“The increased access to liquidity is especially important in light of the slowdown in economic growth and expected depreciation of the RMB in H1 2015, which put a strain on RMB liquidity,” said Zhang Weiwu, general manager of ICBC Singapore.
“This in turn caused a spike exceeding 4 percent in the short-term market interest rates for RMB at one point, which placed additional stress on the financial institutions offering RMB products and services.”
With the option of onshore RMB repos now available, financial institutions will be able to obtain short-term RMB liquidity, thereby increasing RMB bond convertibility.
These financial institutions can also explore the option of reverse repos, through which they can carry out short-term bond investments in the domestic Chinese market and potentially increase their rate of return on the RMB.