A total of 24 banks have been selected to participate in the first phase of the renminbi trade financing liquidity facility ( RMB TFLF ), which went live on Friday ( February 28 ), allowing them to apply for RMB funds from the Hong Kong Monetary Authority ( HKMA ) to provide RMB trade finance services to their corporate clients.

The first batch of participating institutions will receive 50 billion yuan ( US$6.86 billion ) of the facility’s total size of 100 billion yuan, the HKMA says in an announcement.  A specific quota is assigned to each bank based on its expected pipelines, and referencing the bank’s existing scale of relevant business, among other factors.

The HKMA will obtain the necessary RMB funds through a currency swap agreement with the People’s Bank of China.

“The RMB TFLF will further enhance the liquidity of Hong Kong’s offshore RMB market, meet the increasing demand for RMB trade finance, and strengthen Hong Kong’s leading position as the global offshore RMB business hub,” says HKMA chief executive Eddie Yue.

The facility is available in three tenors: one month, three months, and six months, with the interest rate set at  the Shanghai interbank offered rate ( Shibor ) plus a spread of 25bp. Transactions covered are repurchase agreements ( repos ) and RMB/HKD cross-currency swaps. Eligible collateral and haircut for repo transactions are same as those of the existing RMB liquidity facility.

Implementation review

The HKMA will closely review the implementation of the RMB TFLF, including its operation, banks’ RMB trade finance activities and facility usage, as well as market development needs.  The next phase of quota allocation is expected to be implemented around the middle of this year.

The authority is encouraging those who are not yet participating in the RMB TFLF to continue developing their RMB trade finance business so as to be ready to join in later phases.

HSBC, among the first batch of institutions in the scheme, has already arranged several trade finance transactions for its corporate clients. These RMB trade loans have been customized to address the diverse needs of clients across different sectors and industries, including documentary trade, open account trade and structured trade, the bank says, adding that it plans to use its allocated quota to expand its comprehensive trade finance services.

“For 160 years, HSBC has been financing trade across markets. We are pleased to take part in this ground-breaking scheme, reinforcing our commitment to supporting Hong Kong’s growth as the leading offshore RMB market. This new facility will help unlock new growth opportunities for businesses, and we look forward to delivering competitive trade financing solutions tailored to our clients’ evolving needs,” says  Luanne Lim, HSBC’s chief executive officer for Hong Kong.

The renminbi has seen rising use in trade finance in recent years. It accounts for approximately 6% of global trade finance value, making it the second most-used currency in trade finance, according to SWIFT data. This marks a substantial increase from about 2% four years ago, highlighting the currency’s increasing acceptance among global businesses and financial institutions.

Four pilot trades executed

Hang Seng Bank, also among the first participating banks, says it successfully executed pilot trades under the scheme for four corporate customers.

“The newly launched RMB TFLF promotes trade finance settled in RMB, enhancing the liquidity of the city’s offshore RMB markets and potentially narrowing the onshore-offshore RMB interest rate gap in the medium to longer term,” comments Liz Chow, head of global markets at Hang Seng Bank. “This new facility also enables us to provide sustainable and attractive financial solutions addressing the growing demand for RMB financing among our commercial customers.”

The first batch of financial institutions granted access to the RMB TFLF are Agricultural Bank of China, Australia and New Zealand Banking Group, Bank of China ( Hong Kong ), Bank of Communications, Bank of Communications ( Hong Kong ), Bank of East Asia, BNP Paribas, China CITIC Bank International,  China Construction Bank ( Asia ) Corporation, China Construction Bank Corporation, China Everbright Bank, China Minsheng Banking Corp.,

Chong Hing Bank, DBS Bank ( Hong Kong ), DBS Bank, Deutsche Bank, Hang Seng Bank, HongKong and Shanghai Banking Corporation, Industrial and Commercial Bank of China ( Asia ), Malayan Banking Berhad,  Nanyang Commercial Bank, Shanghai Pudong Development Bank, Standard Chartered Bank ( Hong Kong ), and United Overseas Bank.