Tag: China

Banks bulk up in Hong Kong as China business overshadows politics, BFSI News, ET BFSI

Banking & Finance

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HONG KONG – Some global banks, funds and other financial services providers say they are stepping up hiring in Hong Kong, in a sign the city’s unique position as a financial gateway to China is outweighing concerns about Beijing’s tightening grip over it.

Goldman Sachs Group Inc, Citigroup Inc, UBS AG and other banks are each hiring hundreds of people in the city this year, adding substantially to their existing ranks.

Citigroup, for example, has said it is bulking up its staffing by 1,500 people, including additional headcount and replacements in 2021, double the number of people it hired a year ago.

It has about 4,000 people in the city. A Goldman spokesman said the bank, which has about 2,000 people in Greater China, expects hiring in Hong Kong to be up 20% this year.

The Securities and Futures Commission, Hong Kong’s market regulator, is seeing a rebound in licenses it issues for people involved in asset management, securities and other financial activities, according to data on its website.

The total number of licenses it issued was up 1.7% at the end of March, compared with nine months earlier, and just shy of an all-time peak in 2019.

“Hong Kong has some unique advantages, and it will remain the gateway for many of our local and global clients to access China,” said Kaleem Rizvi, Head of Citi’s Asia-Pacific corporate bank.

Many financial companies slowed hiring last year, after protests against Chinese rule and a new security law imposed on the city to crush dissent by Beijing, as well as the coronavirus pandemic, six bankers, recruiters and other industry executives said.

The increased hiring plans of some major players show that they are now willing to live with the political risks.

“Everyone in the business community I have spoken with welcomes the peace and stability now, compared with the chaos of 2019,” said Weijian Shan, chairman and chief executive of Hong Kong-based private equity group PAG.

To be sure, politics remains contentious and unsettling for some finance professionals, some bankers have said. Some expatriate financial workers have left or considered leaving Hong Kong, along with thousands of residents of the former British colony.

Hong Kong police have asked some banks to hand over account details of opposition activists and politicians arrested under a stringent national security law imposed by Beijing, and the government has threatened jail time for bankers handling assets belonging to media tycoon Jimmy Lai frozen under the new law.

Hong Kong’s financial regulators declined to comment on banks’ hiring plans or some bankers’ disquiet about the political tightening.

CLOSE TO CHINA

Bankers and other financial services professionals interviewed by Reuters said much of the lure of being in Hong Kong comes from the city’s close ties to China and the business it brings.

That business is booming. Flows via the stock connect schemes linking Hong Kong with the Shanghai and Shenzhen exchanges rose to record highs in the first quarter of 2021.

Companies, mostly from mainland China, raised more money through Hong Kong listings in the first five months of this year than they did in the same period of the last four years combined, Refinitiv data shows.

Mergers and acquisitions in Greater China are the highest since 2018.

Anthony Fasso, Asia Pacific chief executive of global asset manager PineBridge Investments, said Hong Kong was adapting to the new realities.

“We believe that Hong Kong will remain a globally competitive international city at the doorstep of one of the largest and fastest growing economies in the world,” Fasso said.

HIRING SPREE

Besides Goldman and Citigroup, Swiss bank UBS hired 200 people in the year through March, which consisted of 20 new full-time staff compared to seven in the previously financial year, a spokesman said.

The bank took on 100 contractors and 80 graduates in the year to March. It was the highest number of graduate recruits to join UBS in more than 10 years. The bank has 2,500 people based in Hong Kong.

HSBC Holdings Plc has said it plans to add 400 staff in Hong Kong this year, part of its plan to recruit 5,000 people in the next five years in the region to wealth management in Asia.

Lok Yim, Hong Kong chief executive of Deutsche Bank AG, said the German bank was also planning on making further strategic hires, after a first quarter that had been its strongest in years.

“We are probably two to three times as busy now as we were late last year,” said Olga Yung, regional director at recruitment firm Michael Page in Hong Kong.



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S&P, BFSI News, ET BFSI

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Credit losses for Asia-Pacific banks could reach $585 billion by 2022, or nearly double the pre-Covid level raising credit costs for banks, according to S&P Global.

The credit costs of the Indian banking system may rise to 2.4 per cent by March 2022, compared to a base case of 2.2 per cent, according to the S&P report, “Intervention Worked: Credit Losses Set To Decline For Most Asia-Pacific Banks”.

“In India and Indonesia, where banks have suffered higher asset distress in recent years, the credit losses are set to trend closer to our expected long-term average in the coming years,” said S&P.

Moratorium cushions blow

S&P said moratoriums on loan repayments–together with fiscal, monetary, and policy support–have helped cushion the blow to borrowers in Asia-Pacific from the Covid outbreak and containment measures.

Credit losses are set to fall across most Asia-Pacific banking systems over the next two years, partly because targeted assistance to stretched borrowers will likely continue in many places until pandemic-related challenges substantially abate.

S&P forecasts that credit losses will remain well below its expected long-term average in most countries despite last year’s economic hardship. Credit losses encompass provisioning for expected bad loans, and generally precede charge-offs, the actual write-down of loans that detract from the balance sheet allowances for credit losses

Extended troubles

S&P said the effect of Covid on credit costs in the country will be extended over several years.

“Given the scale of the supports to banks and borrowers, downside risks will stay elevated.

“Besides moratoriums and fiscal support, temporary lenient regulatory and accounting treatment of stressed borrowers will also be lifted over time. And new waves of Covid remain a threat,” it said.

S&P said Asia-Pacific banks should safely avoid a ‘cliff effect’ even as extensive relief measures are progressively removed.

The report said while China‘s banks has taken much of its pandemic-related pain up front, with large credit losses reported in 2020, the fallout is not quite over.

Given the vast size of the country’s banking system, this translates into big numbers, it said.

The report discussed forecast credit losses for the 12 larger banking systems in Asia-Pacific: Australia, China, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand, Singapore, South Korea, Taiwan, and Thailand.



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Industry watchers, BFSI News, ET BFSI

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By Samuel Shen & Andrew Galbraith

Shanghai: China‘s latest salvo against cryptocurrencies has driven a brutal selloff in bitcoin markets but retail traders, miners and even crypto finance firms reckon Beijing’s bark is louder than its bite.

China extending its crypto ban to include banks and payments companies offering crypto-related services furthered a selloff that briefly wiped $1 trillion off crypto market capitalisation.

But fears that the rules would cripple cryptocurrency markets and mining on the Chinese mainland appear baseless. Cryptocurrencies could still be bought from China on Thursday and investment schemes promising juicy returns for mining them remained operational.

Bobby Lee, founder and chief executive officer of Ballet, a cryptocurrency wallet app, said he thought the announcement was merely an attempt by regulators to protect retail investors from volatile markets, but that it would be a challenge for banks to identify crypto-related dealings.

“If you look at the banking activity in China, millions or maybe billions of transactions happen on a daily basis. From all that…how many are actually really crypto services versus dining or e-commerce? It’s almost unknowable,” said Lee, formerly CEO of BTC China, China’s first bitcoin exchange.

It’s not the first time China has banned crypto-related financial and payment services. Beijing issued similar bans in 2013, and in 2017, though the latest one has expanded the range of prohibited services. The repeated bans highlight the challenge of closing the loopholes.

On Thursday, Reuters found it was still possible for Chinese individuals to buy bitcoin and other cryptocurrencies and trade them on overseas crypto exchanges such as Binance. Yuan payments for these purchases could be made via banks or commonly-used online payment platforms in over-the-counter (OTC) markets.

“If you have bitcoin or ethereum, and I want to buy some, I can just send money to you through banks. Just don’t write down anything like bitcoin or ethereum,” said Mr Li, who sells cryptocurrencies on behalf of miners.

“Of course, banks have internal risk-management. If the transaction volume is too big, you might be caught,” said Li, who was unwilling to give his full name because of the sensitivities of the issue.

Miners Undaunted

Players in China’s crypto mining industry were also broadly unfazed by the latest crackdown, again citing the difficulties regulators would have in identifying transactions.

China-based miners have the opposite problem to investors, as they already have bitcoin which they need to change for yuan to pay their electricity costs.

Mining is big business in China, which accounts for as much as 70% of the world’s crypto supply, according to some estimates, although others say that proportion has come down in recent years.

“The Chinese government does crack down from time to time, but currently it is not overly challenging to convert mined coins to RMB for Chinese miners,” said Thomas Heller, chief business officer of Compass Mining, using another word for China’s currency.

Although the new China crypto ban curtails cryptocurrency-related investment products, such schemes are still sold online. One platform offering retail investors a chance to quadruple their money over three years by buying computing power for miners of a smaller cryptocurrency, Filecoin, which has surged in popularity in China, still seemed to be accepting money on Thursday.

Flex Yang, chief executive officer of Babel Finance, a cryptocurrency financing firm, remained bullish. “Bitcoin prices dropped more than 50% last year in March but eventually rebounded back to a new record high,” Yang said. “In the long run, bitcoin still makes for an excellent asset class for portfolio managers seeking growth.”

Reuters’ Kevin Yao in Beijing contributed to this story.



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China extends its cryptocurrency ban to banks, payments companies, BFSI News, ET BFSI

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Beijing: China has banned financial institutions and payments companies from providing services related to cryptocurrency transactions, and warned investors against speculative crypto trading.

It was China’s latest attempt to clamp down on what was a burgeoning digital trading market.

Under the ban, such institutions, including banks and online payments channels, must not offer clients any service involving cryptocurrency, such as registration, trading, clearing and settlement, three industry bodies said in a joint statement on Tuesday. “Recently, cryptocurrency prices have skyrocketed and plummeted, and speculative trading of cryptocurrency has rebounded, seriously infringing on the safety of people’s property and disrupting the normal economic and financial order,” they said in the statement.

China has banned crypto exchanges and initial coin offerings (ICOs) but has not barred individuals from holding cryptocurrencies.

The institutions must not provide saving, trust or pledging services of cryptocurrency, nor issue financial product related to cryptocurrency, the statement also said.

The moves were not Beijing’s first moves against digital currency. In 2017, China shut down its local cryptocurrency exchanges, smothering a speculative market that had accounted for 90% of global bitcoin trading.

In June 2019, the People’s Bank of China issued a statement saying it would block access to all domestic and foreign cryptocurrency exchanges and Initial Coin Offering websites, aiming to clamp down on all cryptocurrency trading with a ban on foreign exchanges.

The statement also highlighted the risks of cryptocurrency trading, saying virtual currencies “are not supported by real value”, their prices are easily manipulated, and trading contracts are not protected by Chinese law.

The three industry bodies are: the National Internet Finance Association of China, the China Banking Association and the Payment and Clearing Association of China.



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China digital currency trials show threat to Alipay, WeChat duopoly, BFSI News, ET BFSI

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SHANGHAI: In China‘s commercial hub Shanghai, six big state banks are quietly promoting digital yuan ahead of a May 5 shopping festival, carrying out a political mandate to provide consumers with a payment alternative to Alipay and WeChat Pay.

The banks are persuading merchant and retail clients to download digital wallets so that transactions during the pilot programme can be made directly in digital yuan, bypassing the ubiquitous payment plumbing laid by tech giants Ant Group, an affiliate of Alibaba, and Tencent.

“People will realise that digital yuan payment is so convenient that I don’t have to rely on Alipay or WeChat Pay anymore,” said a bank official involved in the rollout of e-CNY for the Shanghai trial, under the guidance of China’s central bank. The official is not authorised to speak with media and declined to be identified.

China’s development of a sovereign digital currency, which is far ahead of similar initiatives in other major economies, looks increasingly poised to erode the dominance of Ant Group’s Alipay and Tencent’s WeChat Pay in online payments.

That turf encroachment coincides with Beijing’s expanding effort to clamp down on anticompetitive behaviour in the internet sector, part of a wider reining in of the clout of sector heavyweights.

Regulators scuppered Ant’s record $37 billion IPO in November and earlier this month imposed a sweeping restructuring on the fintech conglomerate controlled by Jack Ma. Ma’s Alibaba Group Holdings was recently hit with a record $2.8 billion antitrust penalty.

In public, the People’s Bank of China (PBOC) says e-CNY won’t compete with AliPay or WeChat Pay, and serves only as a “backup” or “redundancy”.

But in private, state banks marketing the digital fiat currency for the central bank bluntly describe Beijing’s intention to undercut the duo’s dominance.

“Big data is wealth. Whoever owns data thrives,” said another banking official tasked with promoting the e-CNY.

“WeChat Pay and Alipay own an ocean of data,” so the e-CNY rollout facilitates China’s anti-trust campaign and helps the government control big data, he added.

The PBOC and Tencent declined to respond to requests for comment.

Ant declined to comment on the relationship between Alipay and e-CNY. Ant-backed MYbank said it is “one of the parties participating in the research and development” of the e-CNY, and “will steadily advance the trial pursuant to the overall arrangement of the People’s Bank of China.”

Digital cash

The e-CNY digitalises a portion of China’s physical notes and coins, or currency in circulation (M0), and was launched last year in small pilot schemes in four cities.

Under a two-tier distribution system, the PBOC issues the digital currency to banks, which pass the money to individuals and companies.

The six banks in the e-CNY pilot schemes include China’s biggest lenders such Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, and China Construction Bank.

“The e-CNY’s ease of use will likely be comparable to Alipay and WeChat Pay, while its security function will likely be higher, and as sophisticated as Bitcoin,” HSBC wrote in a recent report, adding that it expects the digital currency to “proliferate” within China.

Among a slew of likely motivations cited by HSBC behind the push is the central bank’s desire to gain control of payment channels and consumption data from Alipay and WeChat Pay.

Conspicuously absent

Digital wallets, which are still being beta tested, can be bundled with a dozen popular apps including Meituan, JD.com, Didi and Bilibili, but conspicuously can not be linked to WeChat or Alipay. That means none of the participating banks can transfer e-CNY between their digital wallets and the two established payment platforms.

“PBOC doesn’t want to see the money being routed through third-party payment systems,” a banker said, citing the need for “information segregation”.

The e-CNY will digitise “the last mile” of consumption, enabling banks and merchants to capture data and gain insights into spending patterns, said Wilson Chow, Global TMT Leader, PwC China.

That data is now dominated by Alipay and WeChat Pay, which control a combined 94% of China’s online payment market.

Mass adoption of the e-CNY won’t happen overnight.

Chow predicts that e-CNY will account for roughly 10% of China’s electronic payments market in a few years, co-existing with Alipay and WeChat Pay.

To entice users, bankers said the PBOC will likely give “red envelopes” of free digital cash or discounts to Shanghai citizens around the upcoming shopping festival, an event aimed at promoting spending to fuel economic recovery from Covid-19.

PBOC deputy governor Li Bo told a forum last week that domestic adoption will precede cross-border payments with e-CNY, which many analysts believe will bolster the yuan’s global status as China seeks ultimately to break the dominance of the dollar settlement system.

“The priority of the yuan’s digitalisation is currently to promote its domestic use,” Li said.



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China asks banks to stamp down on loan growth, BFSI News, ET BFSI

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China’s central bank has asked major lenders, including the foreign ones, to curtail loan growth for the rest of this year after a surge in the first two months stoked bubble risks.

At a meeting with the People’s Bank of China, banks were told to keep new advances in 2021 at roughly the same level as last year. Some foreign banks were also urged to rein in additional lending through so-called window guidance recently after ramping up their balance sheets in 2020.

China, which keeps tight control over money flows in and out of the country, may be worried that a surge of funds into the country could lead to nasty surprises like inflation.

“On the one hand, there will be a slowdown in loan growth, and on the other hand, the slowdown is quite moderate,” said Lu Ting, chief China economist at Nomura Holdings Inc., adding that the pace is in line with the PBOC’s stance of making no sharp policy turns.

With the coronavirus largely contained and the economy rebounding, Chinese policymakers have renewed a campaign to curb risks, especially in the financial and real estate sectors. Even if credit growth eases, the prospect of higher interest rates and fewer soured assets may boost the profitability of banks, which saw earnings slump after they were enlisted to help borrowers obtain cheap financing during the pandemic.

Foreign banks

Chinese rules have sharply limited the ability of foreign banks to do business in the country, making them less competitive against local rivals. Rules enacted in December and January restricts how much money foreign banks can transfer into China from overseas. Those enacted last month required many foreign banks to make fewer loans and sell off bonds and other investments.

The new rules have caused a stir among the global bank executives and foreign companies in China that depend on those lenders for money. They worry that the rules could make foreign-owned businesses more dependent on China’s state-run banking system for the money they need to grow. That dependence could give Beijing another potential pressure point to use as it squares off against the US and others over trade, human rights, geopolitics and other sticky issues.

Record credit, inflows

In 2020, banks doled out a record 19.6 trillion yuan ($3 trillion) of credit. Lending the same amount this year would bring the outstanding balance to about 192 trillion yuan.

Foreign investors last year increased their holdings of Chinese bonds by about $150 billion. China also surpassed the US last year by taking in $163 billion worth of direct investments in factories, office buildings, companies and other assets.

China’s currency, the renminbi, rose sharply in value against the U.S. dollar in the second half of last year. In May, $1 was worth about 7.15 renminbi. By year’s end, $1 bought about 6.5 renminbi.



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World Bank, IMF to consider climate change in debt reduction talks, BFSI News, ET BFSI

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By Andrea Shalal

WASHINGTON – The World Bank is working with the International Monetary Fund (IMF) on ways to factor climate change into the negotiations about reducing the debt burdens of some poor countries, World Bank President David Malpass told Reuters in a Friday interview.

Three countries – Ethiopia, Chad and Zambia – have already initiated negotiations with creditors under a new Common Framework supported by the Group of 20 major economies, a process that may lead to debt reductions in some cases.

Malpass said he expected additional countries to request restructuring of their debts, but declined to give any details.

The coronavirus pandemic has worsened the outlook for many countries that were already heavily indebted before the outbreak, with revenues down, spending up and vaccination rates lagging far behind advanced economies.

China, the United States and other G20 countries initially offered the world’s poorest countries temporary payment relief on debt owed to official creditors under the Debt Service Suspension Initiative (DSSI). In November, the G20 also launched a new framework designed to tackle unsustainable debt stocks.

Malpass said the Bank and the IMF were studying how to twin two global problems – the need to reduce or restructure the heavy debt burden of many poorer countries, and the need to reduce fossil fuel emissions that contribute to climate change.

“There’s a way to put together … the need for debt reduction with the need for climate action by countries around the world, including the poorer countries,” he said, adding that initial efforts could happen under the G20 common framework.

Factoring climate change into the debt restructuring process could help motivate sovereign lenders and even private creditors to write off a certain percentage of the debt of heavily-indebted poorer countries, in exchange for progress toward their sustainable development and climate goals, experts say.

The World Bank and the IMF play an important advisory and consultative role in debt restructuring negotiations since they assess the sustainability of each country’s debt burden.

Many developing countries require huge outlays to shore up their food supplies and infrastructure as a result of climate change. Governments must also spend a large amount on alternative energy projects, but lack the resources to pay for those needed investments.

“There needs to be a moral recognition by the world that the activities in the advanced economies have an impact on the people in the poorer economies,” Malpass said.

“The poorer countries are not really emitting very much in terms of greenhouse gases, but they’re bearing the brunt of the impact from the rest of the world,” he added.

IMF Managing Director Kristalina Georgieva earlier this month told reporters about early-stage discussions underway about linking debt relief to climate resilience and investment in low-carbon energy sources.

Doing so, she said, could help private sector creditors achieve their sustainable development targets, she said.

“You give the country breathing space, and in exchange, you as the creditor can demonstrate that it translates into a commitment in the country that leads to a global public good,” she said.



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China-backed AIIB to support Covid vaccine rollout

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The Beijing-backed Asian Infrastructure Investment Bank (AIIB) will follow other development banks in helping to finance the rollout of Covid-19 vaccines, its president said on Wednesday, while its total lending in 2021 will be similar to last year’s.

“The World Bank and ADB (Asian Development Bank) have allocated resources to finance (purchases of) the vaccine, which is in my view very, very important, and we will certainly do the same,” said Jin Liqun, speaking at a news conference in Beijing, without detailing plans.

Covid-19: Asian Infrastructure Investment Bank to offer loan of $500 million to aid efforts

The World Bank, in October, approved $12 billion to help developing countries buy and distribute Covid-19 vaccines, tests, and treatments. The Asian Development Bank launched a $9-billion vaccine facility in December.

Jin said he expects the bank’s total loans this year to be on a similar scale to last year, when it set up a $13-billion funding facility to help public and private sectors fight the pandemic.

Jin Liqun re-elected AIIB President

“This year the scale of our lending will perhaps be around the same as that of 2020,” he said. The AIIB approved 45 loans worth a total of $9.96 billion that year, according to Reuters calculations.

Social infrastructure

The epidemic has shown the importance of so-called “social infrastructure,” particularly in health, and this will continue to be a part of AIIB’s investments, said Jin, who did not give details on how much funding would be devoted to such projects in the future.

The pandemic also forced the bank — whose staff of a few hundred is still tiny compared to that of other development banks — to slow recruitment.

“Once Covid-19 is brought under control we will resume recruitment to enhance our in-house capacity,” said Jin.

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