Chinese banks in Hong Kong view cross-border financing as the main focus for their renminbi (RMB) business in the next 12 months, finds a recent KPMG survey.
The report, titled ‘Review and outlook of Chinese Banks in Hong Kong' , analyses the development of Chinese banks over the past two decades. It features findings from a survey of 23 Chinese banks in Hong Kong, as well as interviews with 12 senior executives on their views on the opportunities and challenges facing the sector in Hong Kong.
The size of Chinese financial institutions in Hong Kong has grown significantly over the past 20 years – their total asset size was HKD 7,260 billion at the end of 2016, an increase of 660 percent from HKD 957 billion at the end of 1997; total asset in terms of market size grew to 39 percent from 11 percent. Also, these banks accounted for 39 percent of the loan market in 2016, compared to 11 percent in 1997.
The surveyed Chinese bankers highlight that RMB internationalisation has become a significant trend, as it is increasingly becoming accepted as a currency for international trade settlement. They believe that Hong Kong will be the first and biggest beneficiary of the trend, given its status as the largest offshore RMB market. Forty-six percent of the surveyed banks indicated that cross-border financing will be the main focus for their RMB business in the next year, much higher than RMB exchange (27 percent) and loans (18 percent).
Edwina Li, Partner and Head of Financial Services Assurance, KPMG China, says: “Chinese banks in Hong Kong should actively expand and participate in offshore RMB business among non-resident clients, seize the opportunities emerging from the opening up of the capital market in the mainland, and actively engage in major initiatives such as the Shanghai-Hong Kong Stock Connect, Shenzhen-Hong Kong Stock Connect and the Bond Connect.”
Bankers also suggest to further open up and integrate the RMB markets, for example, allow Chinese banks in Hong Kong to access the inter-bank market in the mainland to borrow and lend RMB within certain amounts, it would partially help to address any potential problem of insufficient market depth, due to a limited pool of offshore RMB funds, the report notes.
Separately, while bankers believe fintech can help improve their product and service offerings and increase efficiency, almost all of them note that there is a shortage of fintech talent in Hong Kong.
Li says: “A number of Chinese bankers in Hong Kong suggest that the city’s regulators should further liberalise the constraints of cross-border banking groups’ insourcing and outsourcing management. This would allow Chinese banks in Hong Kong to utilise the more convenient and unified management information systems and fintech used by their parent banks in the mainland.”
In order to further enhance Hong Kong's position as a wealth management and treasury centre in the Asia Pacific region, the banks surveyed suggested to simplify the compliance procedures for account opening and sales processes. Also, expanding tax treaties with other countries and regions would help attract more offshore funds to invest in Hong Kong, bring in more capital for innovation and high-tech industries, as well as to support infrastructure development for the Belt and Road Initiative.
Li concludes: “Chinese banks in Hong Kong have witnessed remarkable growth over the past 20 years, both in asset size and in the number of institutions. With the advancement of RMB internationalisation and the establishment of Hong Kong as an offshore RMB clearing centre, Chinese banks in Hong Kong will see their market position strengthen and will develop a stronger link with the international financial sector.”
KPMG China operates in 16 cities across China, with around 10,000 partners and staff in Beijing, Beijing Zhongguancun, Chengdu, Chongqing, Foshan, Fuzhou, Guangzhou, Hangzhou, Nanjing, Qingdao, Shanghai, Shenyang, Shenzhen, Tianjin, Xiamen, Hong Kong SAR and Macau SAR. With a single management structure across all these offices, KPMG China can deploy experienced professionals efficiently, wherever our client is located.
KPMG is a global network of professional services firms providing Audit, Tax and Advisory services. We operate in 152 countries and regions, and have 189,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.
In 1992, KPMG became the first international accounting network to be granted a joint venture licence in mainland China. KPMG China was also the first among the Big Four in mainland China to convert from a joint venture to a special general partnership, as of 1 August 2012. Additionally, the Hong Kong office can trace its origins to 1945. This early commitment to the China market, together with an unwavering focus on quality, has been the foundation for accumulated industry experience, and is reflected in the Chinese member firm’s appointment by some of China’s most prestigious companies.