HONG KONG: More local banks with operating units on the mainland may soon be allowed to issue yuan-denominated bonds in the city, as the central government accelerates Hong Kong's development into an overseas yuan hub in its efforts to boost the yuan's role in international finance, analysts said.

Last month, the mainland units of HSBC Holdings Plc and Bank of East Asia Ltd won approval to issue yuan-denominated bonds in Hong Kong, the first overseas lenders to win the privilege.

Analysts said the central government may soon allow other overseas banks, including Hong Kong lenders, to issue yuan bonds in the city after all mainland lenders use up their yuan bond-issuing quota in the city.

China Development Bank (CDB), one of five mainland lenders allowed to issue yuan bonds in Hong Kong, plans to issue 3 billion yuan worth of bonds by the end of this month, the Chinese-language Apple Daily reported yesterday, citing unidentified sources.

A spokesman for China Development Bank declined to comment on the report when contacted by China Daily.

"The bank posts all information on its official website. I am not in a position to comment on anything that is not officially published on the website," the spokesman, who identified himself as Chang, said.

The 3 billion yuan bonds, with a coupon rate of less than 3 percent, will be sold to both institutional and individual investors, the Apple Daily report said.

The other four mainland lenders - Bank of China, Construction Bank, Bank of Communications and China Export-Import Bank - have used up their quota to issue yuan bonds in Hong Kong.

"Hopefully, more overseas banks will soon secure an approval for yuan-bond issues in the city," said Daniel Chan, a senior investment strategist at DBS Bank.

"They (overseas lenders) are most eager to raise yuan funding by issuing yuan bonds in Hong Kong as their yuan positions are not strong enough to support their operations in China," he said.

On the other hand, mainland lenders, which generally have extensive branch networks on the mainland and can easily siphon large volumes of much cheaper yuan deposits, will be less eager to seek yuan funding in Hong Kong, he said.

With the central government accelerating its efforts to boost the yuan's international role while mainland lenders having modest appetite for yuan-bond issues in the city, the task of promoting greater use of yuan will be likely shouldered by overseas banks, Chan said.

He agrees that the move to allow overseas banks to issue yuan bonds in Hong Kong is part of Beijing's efforts to help develop the city into an overseas yuan hub, which in turn is part of its efforts to boost the role of the yuan.

(HK Edition 06/02/2009 page4)