BoCom selected to clear yuan in S Korea

Shanghai-based Bank of Communications scored a first when it was designated by China's central bank as a yuan clearing bank in Seoul, the lender said in an e-mailed statement yesterday.[Special coverage]

The People's Bank of China signed a yuan clearing agreement with the Bank of Korea on Thursday during President Xi Jinping's visit to South Korea.

The clearing arrangement "signals the start of an offshore yuan center in northeast Asia and will facilitate a win-win situation for bilateral trade between China and South Korea," said BoCom, the fifth-biggest bank in China.

Seoul is the third city in three weeks to have a designated Chinese bank for yuan settlement. China Construction Bank, the country's second-biggest lender, was picked for London on June 18, and the Bank of China, the fourth-biggest, was named for Frankfurt on June 19.

China is rapidly developing offshore yuan centers globally as the country seeks to internationalize its currency.

Last week, the PBOC signed yuan clearing agreements with Luxemburg and France, and the central bank will name yuan clearing banks for these countries later.

Also yesterday, the BOK's data showed yuan deposits in the South Korea's banking sector beat a landmark 20 percent of the total foreign currency deposits for the first time in June.

Bank deposits denominated in the yuan hit a fresh record high of US$11.97 billion at the end of June, up US$640 million from a month earlier.

The figure accounted for 20.3 percent of US$58.95 billion in foreign currency deposits combined.

The portion exceeded the milestone level for the first time since the BOK began compiling the data from September 2000.

In the past year, yuan deposits in South Korea surged around 50 times from US$260 million in June last year. In December, yuan deposits topped 10 percent of the total foreign currency deposits.

The surge came as local financial institutions, or high-yield investors, prefer to deposit funds into Chinese banks in Seoul, which offer higher rates.

The one-year rate for deposits denominated in the won averaged 2.8 percent at the end of last year, below the yuan deposit rate of 3.3 percent.

The growth trend of yuan deposits was expected to continue as China and South Korea agreed to launch the yuan-won direct trading market.

The launch of the direct yuan-won market will cut transaction costs and currency risks, further fueling demand for yuan deposits by South Korean residents.