Chinese yuan deposits are expected to surge on higher interest rates, following the central bank’s decision to allow local banks to accept yuan deposits from next month at the earliest, analysts said.
The possible appreciation of the yuan in the near future will be another driver attracting Taiwanese to make yuan deposits, they added.
The Taipei branch of Bank of China Ltd (中國銀行) — the clearing bank for the yuan in Taiwan — on Friday inked an agreement with the People’s Bank of China (中國人民銀行) regarding settling of yuan-denominated transactions in Taiwan.
The nation’s central bank later announced that other local banks would be allowed to accept yuan deposits from next month, before the Lunar New Year holiday, at the earliest.
“The interest rate on yuan deposits in Taiwan will depend on market conditions,” central bank Deputy Governor Yang Chin-lung (楊金龍) told a media briefing on Friday.
Taipei-based Standard Chartered Bank economist Tony Phoo (符銘財) said he expected yuan deposits to account for between 3 percent and 5 percent of Taiwan’s total annual deposits from the start of the new business.
Phoo said that the yuan may appear attractive to Taiwanese investors due to its low fluctuation risks, and more importantly, the currency is riding an rising trend in the medium term and will likely rise above 6.1 yuan against the US dollar by the end of this year.
The Chinese currency has appreciated about 17 percent against the greenback since the end of 2007.
Judging from the favorable conditions of the yuan, Phoo said the currency is expected to make up 10 percent of Taiwan’s total deposits by the end of 2015, and could even account for between 30 percent and 35 percent of total deposits longer term.
Citibank Taiwan said that its customers are likely to change between 5 percent and 10 percent of their New Taiwan dollar denominated deposits for yuan deposits in the future.
According to Citibank Taiwan, local deposit balances exceeded NT$32 trillion (US$1.1 trillion) at the end of November last year.
The bank said yuan-denominated funds are expected to range between 300 billion yuan and 600 billion yuan in the future.
Before the establishment of the cross-strait currency clearing system more than a year ago, only offshore banking units of Taiwanese banks were allowed to conduct yuan transactions, including taking deposits, extending loans and making remittances.
These units have offered interest rates on yuan deposits as high as 3.5 percent to 4 percent, the Chinese-language Economic Daily News reported on Saturday.
Citing a local bank official, the paper said that the onshore banking units of local lenders could offer an interest rate of about 3 percent for longer-term yuan time deposits during promotional periods.
The Chinese-language Commercial Times yesterday said that Taiwan’s major state-run banks — including the Bank of Taiwan (台灣銀行), Mega International Commercial Bank (兆豐國際商業銀行), Land Bank of Taiwan (土地銀行) and Taiwan Cooperative Bank (合作金庫銀行) — have been discussing setting the interest rate for one-year yuan-denomiated time deposits at about 1.1 percent or 1.2 percent, which would be on a par with NT dollar deposits.
However, the report said that for larger yuan deposits, local banks may be willing to offer higher interest rates to attract premium clients.
Even so, the central bank said investors should cautiously evaluate their yuan-related investments bcause risks of the liquidity, credit and exchange rate of the Chinese currency remain uncertain.