ICBC Singapore completes first onshore RMB repo transaction

The RMB200m transaction is deemed a 'breakthrough'.

ICBC Singapore has executed the first onshore RMB bond pledged repurchase agreement among foreign institutions in the Chinese interbank bond market.

The move leverages last month's opening of China's onshore repo market by the People's Bank of China (PBOC) for international investors, which is aimed at further liberalising the domestic Chinese capital market, as China seeks to promote the RMB as a reserve currency.

The RMB 200 million transaction completed by ICBC Singapore, the country's sole PBOC-appointed RMB clearing bank, represents a new breakthrough among existing RMB offerings in the local market, and marks a milestone contribution by Singapore's financial sector to the strengthening of the global RMB capital pool. Besides facilitating financing and investment projects in RMB for local banks, RMB repos will support the local financial sector in tapping on the liquidity of the domestic Chinese capital market, and lower liquidity risk for these 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 Mr Zhang Weiwu, General Manager of ICBC Singapore. "This in turn caused a spike exceeding 4% 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.