At the Asian Financial Forum on 13 January, Governor Pan Gongsheng of the People’s Bank of China (PBoC) and I announced six new measures to deepen financial cooperation between Hong Kong and the Mainland. One of these measures is the introduction of the Hong Kong Monetary Authority (HKMA) RMB Trade Financing Liquidity Facility. Today, we have written to banks in Hong Kong setting out details of the facility and the launch date of 28 February. We have invited banks to indicate their interest in participating and their desired quotas.
Trade finance and the development opportunities
In international trade, simultaneous, back-to-back payment on delivery is ideal but not easy to achieve, due to factors such as the time it takes to ship goods. To facilitate trade, banks offer trade finance services. For example, they may issue letters of credit that guarantee payment to a seller upon delivery of the goods, thereby mitigating the risk that a buyer may not meet its payment obligation. Another common example is for a seller of goods to sell outstanding trade receivables to a bank for immediate cash flow. The bank then collects the payment from the buyer when it falls due.
Providing trade finance to corporate customers is therefore an important banking service that promotes international trade and cross-border capital flows. With Hong Kong being an international financial and trade centre, trade finance has long been one of the main services provided by our banks. According to the latest available data as of the end of November 2024, outstanding trade finance by banks in Hong Kong totalled HK$354 billion. If we include acceptances and bills of exchange held, the total amount reached HK$505 billion, of which around 85% was denominated in foreign currencies.
In recent years, the use of RMB in cross-border trade settlement has become increasingly popular. According to SWIFT data, RMB accounted for 6% of international trade transactions in December 2024, ranking third among currencies. The proportion of the Mainland's external merchandise trade settled in RMB has also increased from 15% in 2020 to approximately 30% in 2024. This is a result of RMB internationalisation over the years, while also reflecting the trend of Mainland corporates actively expanding their overseas business in response to developments in the global supply chain.
At the same time, RMB interest rates have recently been lower than those of other major currencies, incentivising corporates to engage in RMB financing. In the first three quarters of last year, RMB-denominated bonds totalling RMB776.8 billion were issued in Hong Kong, a 35% increase compared with the same period in 2023. By the end of 2024, the outstanding RMB loan balance stood at RMB724.0 billion, marking a year-on-year increase of 64%.
In light of these positive developments, the demand for RMB financing has been increasingly strong in the offshore markets. As the global offshore RMB business hub, Hong Kong is well-positioned to capitalise on this trend and seize the opportunity for further development.
Promoting offshore RMB trade finance
Banks in Hong Kong have a strong interest in providing RMB financing to the market. However, there are some constraints in the current state of offshore RMB liquidity and market structure. First, the growth of the RMB pool has yet to catch up with the increasing demand for liquidity. Second, there is a need for more stable RMB funding, particularly for banks whose RMB deposit base may not be sizable. Third, because offshore RMB interest rates are usually higher than onshore rates, corporates that can access both onshore and offshore financing may not consider Hong Kong competitive.
Following extensive communication with market stakeholders and in-depth research, we see a need to provide longer-term and more stable RMB liquidity, at lower cost, for banks to provide RMB trade finance services to corporates. This is a priority because trade finance meets the actual needs of corporates and supports supply chain transformation.
With strong support from the PBoC, we have decided to utilise the HKMA-PBoC Currency Swap Agreement to introduce the HKMA RMB Trade Financing Liquidity Facility, with a view to facilitating banks in providing RMB trade finance services to corporates. The key features of the facility are as follows:
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The total facility size is RMB100 billion, representing approximately 10% of Hong Kong’s RMB pool |
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Participating banks may obtain funding at tenors of one, three or six months, which are considerably longer than HKMA’s existing RMB liquidity facilities that covers tenors of up to one week. This is to provide a stable RMB funding source for banks offering RMB trade finance services to corporate customers, while adequately covering the duration of most trade financing needs. |
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Under the facility, interest payable by banks to the HKMA will be based on the respective onshore RMB interest rate (i.e. SHIBOR) plus a spread of 25 basis points. This formulation is market-based, while providing participating banks with access to a stable source of funds at a lower cost, which should make it easier for corporates to obtain RMB trade finance from banks at lower interest rates. |
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To facilitate broader participation by banks, we will adopt a phased approach in allocating quota to interested banks, taking into account their business needs and plans. |
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To further consolidate Hong Kong’s global offshore RMB business hub, participating banks may tap the facility to provide RMB trade finance to overseas corporates as well as local ones. |
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To ensure that funding obtained from the facility is used for RMB trade finance purposes, participating banks are required to have proper governance and control over the use of the facility. |
In the coming two to three weeks, we will engage with banks on the operational details of the new facility to help them prepare for the launch on 28 February. To ensure smooth implementation, we will keep a close watch on the progress and market feedback.
The RMB Trade Financing Liquidity Facility represents a major policy breakthrough and marks another milestone in the development of Hong Kong’s offshore RMB business. We will continue to collaborate with Mainland authorities and market participants in exploring and pursuing further offshore market development opportunities for Hong Kong.
Eddie Yue
Chief Executive
Hong Kong Monetary Authority
7 February 2025
