Local banks out to tap rising demand for China’s yuan
The Central Bank of Kenya recently allowed the Bank of China to set up a representative office to facilitate trade. Photo/File
What you need to know:
Citi, Bank of Africa, and Commercial Bank of Africa are some of the institutions establishing correspondent banking services with Hong Kong-based banks to supply the Chinese yuan to finance the growing demand among Kenyan importers.
Central Bank of Kenya recently allowed the Bank of China to set up a representative office in Kenya to facilitate trade.
The Chinese government operates two-currencies-in-one where the yuan is used for trade within China and the RMB for external trade. The RMB is mainly administered in Hong Kong.
China has strict exchange rate controls to check foreign currency outflows, which has contributed to the slow uptake of the most traded currencies in the world after the dollar.
Local banks are angling to tap into the rising demand for Chinese currency by entering into partnerships with the country’s lenders to facilitate direct shilling-to-yuan transactions. At present, most trade with China is transacted through dollars.
Citi, Bank of Africa, and Commercial Bank of Africa are some of the institutions establishing correspondent banking services with Hong Kong-based banks to supply the Chinese yuan to finance the growing demand among Kenyan importers.
The bankers say that besides rising bilateral trade, the number of Chinese companies operating in Kenya is growing.
“Generally, banks see it as a niche segment and are aligning themselves to take advantage of the opportunity,” said Mr Tony Mulisa, the head of treasury at Barclays Bank.
Imports from China have risen dramatically from Sh45 billion in 2007 to Sh144 billion last year, while the country has become one of the biggest donors to Kenya.
“We are currently seeking a bank based in Hong Kong in order to have supplies of the yuan,” said Mr Ignatius Chicha, the Citi treasurer.
The Chinese government operates two-currencies-in-one where the yuan is used for trade within China and the RMB for external trade. The RMB is mainly administered in Hong Kong.
China has strict exchange rate controls to check foreign currency outflows, which has contributed to the slow uptake of the most traded currencies in the world after the dollar.
A year ago, Equity Bank signed a deal with the China Union Pay for its customers to transact from the bank’s ATMs and points of sale in East Africa.
“This is demand driven. There is increasing demand from the market, plus the number of Chinese companies doing business in Kenya is growing,” said Mr Philip Wambua, the head of trading at Bank of Africa.
“If you do too many transactions it becomes bothersome and expensive, so you bypass the dollar,” said Mr Chicha.
Chinese contractors’ role as financiers of some of the key projects in Kenya has also led to high volumes of RMB-shilling transactions. The direct currency transactions are intended to reduce exchange rate risks associated with dealing in three currencies.
Donor funding has also shifted to Asia with China leading the pack particularly in infrastructure financing.
“The dominant perception is that we need to work with Asia,” said Mr Mulisa.
China has been buying Africa’s raw materials as imports demand in Europe falls.
