BoCHK set to secure role for Philippines renminbi clearing

The People’s Bank of China appears set to name Bank of China Manila as its clearing agent for renminbi in the Philippines in the coming weeks.

The move follows Chinese president Xi Jinping’s November visit to the Philippines – the first by a Chinese head of state for 13 years – when a number of bilateral agreements were made, including one described as being on monetary co-operation between the PBoC and the Central Bank of the Philippines (BSP).

“The clearing bank is not officially appointed but during the state visit the two countries signed a memorandum of understanding on monetary regulation between the two central banks,” says a Chinese official familiar with the situation. “This is the foundation for clearing bank appointments – the clearing bank needs to meet the supervision requirements of both sides, the PBoC and BSP.”

The next step will be “to appoint Bank of China Hong Kong (BoCHK) Manilla branch” as the clearing bank as it is “the only Chinese bank with operations in the Philippines”, the official says. ICBC also appears to have secured a banking licence to operate in the Philippines during the November state visit, but it has yet to build up significant operations in the country. The BSP did not respond in time to requests for comment.

Bank of China’s Manilla unit is run by BoCHK, an operating subsidiary of Bank of China Group listed in Hong Kong, which has responsibility for all Association of Southeast Nation (Asean) countries with the exception of Singapore. BoCHK aims to become a mainstream foreign bank in the Asean region, drawing on its renminbi business as competitive advantage.

Local currency settlement

BoCHK has worked consistently to build its presence in the Philippines despite a waxing and waning of relations between China and the Philippines during the past decade, largely over territorial disputes. Political fallout was attributed by some observers for the failure of the country’s two central banks to renegotiate a $2 billion bilateral swap agreement back in 2010.

Nonetheless, the same year, BoCHK started a banknote clearing in the Philippines. More recently, BoCHK linked up with 13 Philippines banks to create the Renminbi Trading Community, a self-regulatory organisation supervised by BSP aiming promote offshore and onshore renminbi usage in the Philippines. It was also the sole underwriter for a Bank of China Group ‘panda bond’ issuance this year as relations between the two countries continued to improve under the Philippines’ current president Rodrigo Duterte.

Bilateral local currency settlement

Promoting bilateral local currency settlement appears to be back in vogue, in part driven by concerns over US protectionism, even though the banks involved often have to manage their liquidity and foreign exchange risks via the US dollar currency pairs.

Indonesia, Thailand and Malaysia have all signed bilateral local currency settlement agreements with each other. In addition to the renminbi-Philippines peso currency pair, ringgit, Hong Kong dollar and Singapore dollar can also be settled bilaterally with the renminbi.

“Indonesia is currently under negotiation” to set up bilateral settlement with the renminbi, says a Chinese banker familiar with the situation.

Indonesia renewed its currency swap agreement with the PBoC in November and a renminbi clearing bank in Jakarta is expected to be named in due course. BoC, ICBC and China Construction Bank are the most likely candidates to secure the clearing facility.