Thursday, June 24, 2010

How will appreciation of Renminbi (Chinese Yuan) affect Singapore banks?

According to a report by UOB Kay Hian:
  • Potential appreciation has little impact on Singapore banks
  • Table below explains some of the exposure of the Singapore banks
  • DBS's wholly owned DBS Bank (HK) has 50 braches and a market share of 5% in Hong Kong. Hence they will benefit if the RMB appreciates.
  • OCBC owns a stake in Bank on Ningbo, which is worth around SGD661.9 million (about 2.3% of OCBC's current market capital) and hence with an appreciation of RMB, this will mean that the investment in Bank of Ningbo is worth more.

Branch Network
Investments in China
Estimated % of Total Loans
Eight main branches and seven sub-branches in China
Five main branches and four sub-branches in China
10% stake in Bank of Ningbo
Eight branches in China
15.4% stake in Evergrowing Bank
 * Table courtesy of UOB KH

In my view, I would think that if the RMB were to appreciate, the banks will actually stand to benefit much much  more .This is because I believe that the banks would have also made other kinds of mini investments that are yet to be reported. (We all know that Singapore is heavily invested in China) Hence in general their total assets in China will appreciate!

But then again, though the RMB is expected to appreciate in the long term. We are still unsure about the short term direction!

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