Foreign currency loan surge enterprise Arbitrage space Highlights

The news from the banking sector shows that China's bank of renminbi loans significantly contracted, but in sharp contrast to the surge in foreign currency loans, from the beginning of the negative has been steady growth, into the three-quarter more explosive burst.　　In the background of credit tightening at the end of the year, along with the further depreciation of the dollar and the expectation of appreciation of the renminbi, many banks and enterprises have chosen to open up new loans through foreign currency loans and presumed arbitrage returns. Starting in May, China's financial institutions began to grow markedly in a single month of new foreign exchange loans, a further $37.2 billion trillion in June and continue to grow in the three quarter, according to central bank data.　　This year into September, the balance of foreign exchange loans has reached 343.3 billion U.S. dollars, an increase of 28.34%. Commercial bank Personage said, because the foreign exchange loan does not include the renminbi credit scale control, this becomes the many bank renminbi loan scale, satisfies the partial customer financing demand the new way. In the case of a loan, foreign currency loan is a new channel for many enterprises and individuals to obtain loans.　　　　According to the data, as of September, China's financial institutions foreign exchange loans to deposit up to 169%.　　Arbitrage space: Foreign currency low interest rate + RMB appreciation expectation with the rising of the RMB appreciation expectation and the low interest rate of US dollar loan, the arbitrage space of the enterprise is further revealed through the hedging between the domestic and overseas markets. It is understood that at present, China's commercial banks foreign exchange lending rates generally low, according to different customer ratings, different loan terms, foreign currency loans to the point of difference from 70 to 200 basis points. "In the 6-month Libor, the 6-month dollar loan rate is about 0.67% to 0.8%, well below the loan interest rate of RMB 4.86% in the same period."　　"Foreign currency loans have greatly reduced the cost of financing," said a researcher at the Bank of China's International finance department. On the other hand, the continued decline in the United States dollar and foreign market expectations of the appreciation of the renminbi have further widened the domestic and foreign market forward exchange rate, and promote the corporate institutions to borrow foreign currency, and then through the NDF or domestic forward buying dollars for hedging and arbitrage behavior. Data show that the current 12-month forward due exchange rate is about 900 points. "The deal is profitable when the forward exchange rate points between the two markets are 800 to 1000." Foreign investors are willing to buy more of the renminbi that the affiliates sell because of expectations of a stronger renminbi.　　Said Stephen Green, director of China Research at Standard Chartered Bank. Arbitrage proceeds: A risk-free profit of more than 2% "in general, importing companies borrow dollars from banks to pay for imported products, and are exposed to foreign exchange exposures before the company sells its products and obtains renminbi income from customers. But companies can hedge foreign exchange risk through the overseas ndf (RMB no principal delivery forward) or the domestic market to buy dollars forward. At present, the cost of one-year dollar loan for commercial banks is about 2%, and the cost of one-year RMB loan is roughly 5.8%. "Therefore, in any way, enterprises will benefit from the realization of the foreign exchange risk of zero, and the cost of borrowing dollars is much lower than borrowing the renminbi.　　"said Stephen Green. In addition, for export enterprises, the domestic forward market can be used to sell the dollar forward, but at the same time, its overseas affiliates in the overseas NDF market to buy back the dollar.　　In general, the company does not have foreign exchange exposure, the domestic and foreign markets in the U.S. Yuan forward exchange rate points, but also can become the enterprise's risk-free profits.　　BOC International said that, in combination, the appreciation of the exchange rate to benefit from the domestic dollar loan interest rate, enterprises can not only complete the loan interest, but also to obtain about 2% of the annual income. Central bank conundrum: pressure on greater credit regulation many in the market are worried that the strong growth of such foreign currency loans will bring new problems to the central bank's credit regulation. If the enterprise sells the dollar forward in its territory, the commercial bank with which it trades must sell the dollar in the market to avoid its own exchange rate risk. In our country, the commercial bank's counterparty is the central bank, this transaction causes the dollar to sell, thus causes the foreign exchange reserve to rise.　　The pressure on the central bank to regulate money and credit has increased. At present, many large enterprises through the establishment of related entities overseas, in parallel to carry out domestic and foreign forward transactions. Commercial bankers told reporters that many of the current import and export business customers are registered in Hong Kong Branch, and then obtain the qualification to deal with the arbitrage.　　However, it is difficult to verify the size of the current funds for such transactions, as data on the domestic forward market will not be disclosed. Some insiders said that many banks have stepped up their activities, hoping to push up the short-term foreign debt limit. But if the short-term foreign debt limit is lowered again, banks will have to withdraw their loans, and the cost of the dollar's financing would rise. Such changes will undoubtedly have a negative impact on companies that really need dollars, such as importers.