With the global financial news being unrelentingly negative in recent months, the golden egg potential of the renminbi (RMB) business remains a beacon of hope to banks. But bankers say unanswered questions remain, and Hong Kong retail banks have yet to see any notable profits.
In any case, in terms of jobs, this means those with exposure to RMB business stand a good chance of landing a solid career.
Three panelists at the Hong Kong Institute of Bankers (HKIB) conference held on September 27 - Ngan Kim-man, head of the RMB business strategy and planning department at Hang Seng Bank, Linda Wong, managing director and head of consumer banking for Hong Kong and China at DBS Bank, and Teddy Wong, head of deposits for Northeast Asia at Standard Chartered Bank - discussed their RMB business experience, and concluded that, amid potential for fabulous rewards, the sector is hardly profitable.
The lure of the RMB, based on the expectation of the currency's appreciation, is clear. Linda Wong notes that almost 9 per cent of total Hong Kong deposits are now held in RMB, or yuan. "The growth is really huge and rapid, especially over the past 12 months," she says.
But an uncertain regulatory environment and a lack of products are hampering the growth of yuan trade, say bankers.
Since 2004, Hong Kong banks have been allowed to conduct RMB business for retail customers, notes Ngan. Three years later, retail banks were allowed to issue so-called Dim Sum bonds - denominated in yuan and issued in Hong Kong. In 2010, the Hong Kong Monetary Authority - the city's de facto central bank - relaxed its rules on RMB settlement, and in August this year, the mainland's vice-premier announced that Hong Kong would be the RMB's primary offshore centre in the future. All of these developments point to the highly regulated nature of RMB business, says Ngan, who believes that more - and more frequent - regulatory changes are likely, making it essential for banks to keep up with developments.
Teddy Wong says that the lack of investable products for traders is impeding growth. "So far this year, there is only one retail bond," he says, adding that demand has far outstripped supply.
From a retail perspective, it is unlikely that banks are actually making money from their RMB business, says Linda Wong. However, she says that loans have been growing much faster than expected this year, compared with last year.
Ngan says Hang Seng's RMB business is not generating "a meaningful income". The same is true at Standard Chartered. "RMB is not a core revenue-generator at this moment," says Teddy Wong, but adds that the bank will continue offering RMB services to customers to deter them from moving their business to another bank.
Increasingly, customers are seeking to open accounts on the mainland, he says, because of an interest rate differential of up to 3 per cent, but people should be aware of the risks involved in holding overseas deposits given different mainland rules, he adds.
The main one is compliance risk, according to Ngan, adding that many of the regulations are open to differing interpretations. Still, the growth potential is very attractive.
Linda Wong estimates that by 2020, 17 per cent of the retail revenue pool - such as those from wealth management products - will come from the mainland.
General market expectations are that in five years, the RMB will account for about one-third of Hong Kong deposits, says Teddy Wong. "So we need to prepare for it," he adds.