3 reasons why cross-border RMB business is lucrative for BOC

Its offshore settlement reached RMB948bn, a 30% market share.

According to Barclays, BOC has a leading position in cross-border RMB business in China. In Jan-Oct 2012, the bank’s offshore cross-border RMB settlement reached RMB948bn, a 30% market share. Currently, 12% of the bank’s international settlements are in RMB and 15% of its clients have chosen to use RMB as a settlement currency.

Here's more from Barclays:

BOC’s management says the bank has several advantages in cross-border RMB business, including:
§ Strong overseas branch network: BOC has 602 overseas branches and has agency bank relationships for cross-border RMB business with 1,600 foreign banks in 180 countries, a more extensive network than its peers.

§ A key clearing bank in RMB business: The bank and its subsidiaries is the clearing bank for cross-border RMB business in Hong Kong, Macau, Malaysia and Taiwan.

§ Comprehensive products and services: The management claims that since BOC was the first Chinese bank to do cross-border RMB business, it has developed more comprehensive services and products, including deposits, loans, letter of credits, guarantees, bills, swaps and forwards.

In the first ten months of 2012, cross-border RMB business contributed RMB3.2bn in fee income to the bank’s onshore business and RMB6bn in interest income to its offshore business, accounting for 4% and 2% of the bank’s total fee income and interest income in 9M2012.

Despite the small contribution to the bottom line, we believe BOC could speed up its internationalization and business transformation through the cross-border RMB business. The management says that many foreign enterprises have chosen BOC as their major bank for RMB transaction and settlement, which can enhance the bank’s fee income.

Shenzhen is an important hub of cross-border RMB business
Due to its geographic advantage, Shenzhen’s cross-border RMB business has developed faster than in other cities in China. China's government plans to launch several trial cross-border RMB business programmes in Shenzhen’s Qianhai Bay Economic Zone.

In the first ten months of 2012, BOC Shenzhen branch’s cross-border RMB business reached RMB130bn, higher than the RMB80bn in 2011. Its market share increased to 33% from 27% at end-2011. The number of clients in this business soared to 923 at end-Oct 2012, up from 723 at end-2011, and are mainly engaged in the electronic manufacturing, telecommunication and jewelry industries.

Current account settlement is still the major business in BOC Shenzhen’s cross-border RMB settlement, accounting for 79.7% of the total settlement. However, the ratio is lower than the average level in the Shenzhen area (81.7%), indicating that BOC Shenzhen could offer more products and services related to RMB investment activities.