Foreign Banks Allowed to Issue RMB Bonds

The Chinese watchdog opened the door for the foreign banks to issue the RMB bonds in Mainland China, which was the first time in the history.

As reported by the Wall Street Journal, Japan-based Bank of Tokyo-Mitsubishi UFJ said on December 25, 2009 that its branch bank in China had been approved by the Chinese watchdog to issue the bonds priced at the Renminbi (RMB) in the inter-bank bond market. It was the first foreign commercial bank to be allowed to issue RMB bonds in Mainland China.

Bank of Tokyo-Mitsubishi UFJ is a subsidiary company of Mitsubishi UFJ Financial Group Inc. The approval could help this bank get the stable middle- and long-term financing source. According to the insider from this bank, the issuance of this bond could help to meet the customers’ demands in middle- and long-term credit loans. But the insider refused to give out the amount of capital raised by issuing the bonds and the time of the issuance.

It was known that Bank of Tokyo-Mitsubishi UFJ was the first foreign bank to get into the Mainland China’s RMB bond market. Before that, only the Chinese domestic banks were allowed to issue the RMB bonds in the inter-bank bond market in China. The foreign banks had to rely on the reserves and inter-bank lending market, which somewhat influenced their capability of getting their needing fluidity. As the Chinese government began to tighten the monetary policy to depress the inflation, the foreign banks had to be confronted with the need for diversified financing activities. Fortunately, the restrcitions on the foreign banks to issue RMB bonds in China became less strict. In August 2009, HSBC Holdings became the first foreign bank to issue the bonds priced at RMB in Hong Kong. Then Bank of East Asia also got the approval.

According to the plan, the China branch of Bank of Tokyo-Mitsubishi UFJ would begin to draft the details of the issuance, such as amount, schedule and so on. Then it would submit the plan to the People’s Bank of China (the central bank) for approval.

It was known that Beijing became the pilot place for the foreign banks to issue RMB bonds early in 2005. At that time Asian Development Bank and International Finance Corp under the world bank issued the first batch of Panda Bonds. Early in December 2009, Asian Development Bank issued the second bacth of bonds. The experts pointed out that foreign banks’ issuing RMB bonds might benefit the Chinese institiutional investors, because the RMB could replace the foreign currencies. Furthermore, the non-financail enterprises would also benefit from the loosened restrictions. For example, the banks might be more willing to lend their RMB raised by issuing this kind of bond to the Janpanese enterprises in China.