Setting the standard

African lender banks on ICBC alliance to boost yuan business

Standard Bank, Africa's largest bank by assets, is banking on its alliance with the Singapore branch of Industrial and Commercial Bank of China to increase its share in yuan settlement trade on the continent.

The South African bank has already started providing renminbi services in association with ICBC, its largest shareholder and strategic partner.

"We believe that there are major opportunities in the African market for yuan settlement, yuan-denominated direct investment and foreign exchange reserves," says Liu Yagan, chief representative of ICBC Africa.

Currently, yuan accounts for less than 1 percent of total China-Africa trade settlements, but the proportion is increasing rapidly and there is huge room for growth in the future, Liu says.

In light of China's importance to South Africa and the African continent, Standard Bank has set up a Chinese-speaking team that deals with transactional products and services, global markets and business advisory services in Africa.

"Education is key to making clients aware of our yuan capabilities and the benefits of settling their trade in renminbi," says John Beynon, head of foreign exchange sales at Standard Bank in South Africa.

"Although the use of yuan is still limited, we believe there is potential with the growing trade volume and ties between China and Africa."

Demand for yuan has picked up in Angola and Namibia for trade settlement purposes, as well as in Zimbabwe and Zambia for investment purposes.

"There has also been a steady increase in enquiries across the continent for personal remittances in yuan, whereby Chinese individuals, working in Africa, need to remit a portion of their salaries home," Beynon says.

"Continuing to create an awareness of the yuan and its related benefits, as well as enhance Standard Bank's yuan capabilities, remain critical success factors for short-term growth, which should also lead to future growth in settling trades in yuan."

ICBC has been actively promoting a potential currency swap agreement between African central banks and the People's Bank of China.

"The demand for the yuan among both African enterprises and central banks is becoming increasingly evident," Liu says.

"Many Chinese companies that export to Africa have also expressed interest in settling business in yuan and gaining access to yuan deposits."

Liu notes that the focus of creating offshore yuan trading centers in Africa will be in countries that have a trade surplus with China, such as South Africa.

At the same time, Liu admits that the establishment of offshore yuan markets in Africa still faces many challenges.

"There is a wide range of internal imbalances and over-reliance on the external market in most African countries. This has led to very unstable exchange rates, which has hampered the development of currency swap agreements," he says.

Liu says that the Chinese government should enlarge the quota on yuan-denominated overseas direct investment in order to channel more yuan to Africa through direct investment.

"China should also create more channels between the offshore yuan markets and the domestic financial markets to boost incentives for investors to use the Chinese currency," he adds.

(China Daily Africa Weekly 08/02/2013 page7)