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First tap on yuan swap facility by banks in S'pore

FOR the first time, two banks in Singapore have drawn upon a currency swap facility between Singapore and China as trade between the two countries continues to grow.

HSBC and DBS are the first banks to tap on this $30 billion arrangement, which allows companies to borrow Chinese yuan through banks in Singapore to use for trade and direct investment in China, and also supports the internationalisation of the yuan.

HSBC said they have completed a transaction that enables one of their customers, a commodities trader, to access the Chinese yuan (CNY) under the Monetary Authority of Singapore CNY Facility.

HSBC's customer is involved in commodities trading, specialising in base metals, with a third of the company's total sales currently transacted in yuan, the bank said.

Mr Amit Gupta, HSBC's head of global markets in Singapore, said: 'This pioneering transaction is the first of many which will enable companies in Singapore to access onshore CNY funding and reap the benefits from trading in RMB with their mainland suppliers and customers.' (RMB refers to renminbi, the Chinese currency.)

DBS said its customer is a Singapore-based commodities company exporting to China. DBS Group Head of Treasury & Markets Andrew Ng said: 'Over the past week, we have also received many enquiries from Singapore clients interested to borrow RMB for trade settlement purposes.'

The facility was jointly set up between the MAS and China's central bank, the People's Bank of China (PBC), last year. This swap line, introduced for an initial period of three years, may be extended. It provides liquidity of up to 150 billion yuan and up to $30 billion.

To access the swap line, the MAS lends yuan to the banks, which in turn lend the currency to customers for trade and direct investment.

Each swap transaction with the bank is for three months, but it can be renewed with the PBC's approval.

When the transaction matures, the yuan is returned to the MAS plus interest. The MAS then passes the yuan plus the interest to the PBC.