In response to increased local demand for RMB clearing in Singapore, the Monetary Authority of Singapore (MAS) has announced a facility for providing overnight Renminbi (RMB) liquidity to financial institutions in the city-state.
MAS also welcomed the directive issued recently by the People’s Bank of China (PBC) Nanjing branch that will allow eligible corporates and individuals in the Suzhou Industrial Park (SIP) to conduct cross-border RMB transactions with Singapore.
These initiatives will further promote the international use of RMB and facilitate the growth of the RMB offshore market in Singapore.
To be launched on 1 July 2014, the overnight RMB liquidity facility will provide up to RMB 5 billion in overnight funds on any given day.
Singapore’s RMB market has grown rapidly, and the facility will further bolster market confidence by giving financial institutions the assurance that their short-term RMB funding needs will be met.
The facility complements the existing MAS RMB facility that allows banks to borrow RMB funds on a term basis for trade, direct investment and market stability purposes.
“As the volume of RMB activities grows in Singapore, the overnight RMB liquidity facility will help alleviate end- of-day funding strains of financial institutions,” says MAS Deputy Managing Director, Jacqueline Loh.
Details of the overnight RMB liquidity facility will be made available on MAS’ website on 1 July 2014.
Currently, there has been over US$15 billion in RMB bond issuance in the city-state of Singapore - more than doubling the issuance of 10 years ago.
Central China Real Estate and Hainan Airlines were two of the most recent mainland China companies to issue bonds in Singapore with US$160M and $273M respectively.
SIP Cross-border RMB Initiative
The SIP cross-border RMB initiative was part of the agreement reached at the 10th Joint Council for Bilateral Cooperation on 22 October 2013 to strengthen China-Singapore financial cooperation.
PBC’s directive will allow for a range of cross-border transactions. Banks in Singapore can conduct cross-border RMB lending to corporates in SIP; and corporates in SIP can issue RMB bonds in Singapore.
Furthermore, equity investment funds in SIP can conduct direct investment in corporates in Singapore.
Individuals in SIP can conduct RMB remittance between China and Singapore for the settlement of current account transactions and direct investment in corporates in Singapore.
“The introduction of cross-border RMB channels between Singapore and SIP will facilitate greater financing for companies operating in the SIP, encourage direct investment in corporates in Singapore and broaden the range of RMB activities that can be conducted out of Singapore," says Loh.