Foreign Banks to Bolster RMB Interbank Business under New Simplified Code

With competition from Hong Kong, Singapore and London, China steps up its game to enhance trading activity in the Yuan.

chinese yuanChina is preparing for developments in its banking system as foreign firms will benefit from reforms in the criteria to set up shop in the world’s most populous nation. Chinese state media reported that the government had approved a series of initiatives liberalizing the once stringent banking sector. Overseas firms will be able to establish local entities without having to adhere to criteria that impedes business opportunities. The move signifies the position of China as a leading player in world economics.

The new reforms will further support developments in the banking sector as players from developed and emerging market nations can compete for China’s billion plus banking potential. Under the new rulings, the most significant development is the minimum capital requirement for banks. The state authority reported on its website that it removed the $16 million requirement of capital adequacy banks had required in order to enter the market. The new reforms are to be implemented on the first of January, 2015.

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Bankers have appreciated the ongoing developments in both the onshore and offshore currency market. The Shanghai Free Trade Zone has relaxed the RMB business in terms of settlement and trade. In addition, the ongoing internationalization of the yuan supports the overseas banking sector in Shanghai.

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Over 400 foreign banks are currently operating in China, a sharp rise from the 180 present in 2004. With substantial assets under management, they however only contribute to around 2% of total banking assets, according to the Chinese Banking Associations report in 2012.

Details show that the authorities have cut the number of years a bank has to be registered before it conducts renminbi business from three to one, and also removed a two-year profitability requirement.

In addition, banks are no longer required to establish a China representative office before setting up other branches.Under the new rules, branches of a foreign bank will not face obstacles to carry out renminbi business if it already has one branch doing so.

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