BNP Paribas and Deutsche Bank have become the first foreign banks to win approval to act as lead underwriters on all non-financial corporate debt in China’s vast interbank bond market, the latest stage in the opening of the country’s financial sector.
The National Association of Financial Markets Institutional Investors said last week the two European banks had been granted Type A licences, which allow them to lead sales of all forms of corporate debt such as negotiable certificates of deposit and asset-backed notes. Financial bonds, which are regulated by the People’s Bank of China, require a separate licence.
Samuel Fischer, head of China onshore debt capital markets at Deutsche Bank, said the licence was an endorsement of the bank’s commitment to the Chinese market.
“It will allow us to better support our international clients, either Panda bond issuers or domestic holding companies of foreign issuers, and Chinese issuers that we have experience working with offshore,” he said.
CG Lai, BNP Paribas’s China head, said the licence would help the bank increase its market share in China with both local issuers and multinational subsidiaries.
The announcement took market participants by surprise, coming less than two weeks after NAFMII had issued new rules allowing foreign banks to apply for Type A licences. Previously, international banks had been restricted to acting as lead underwriters only on Panda bonds, referred to as Type B licences.
A NAFMII official told IFR the granting of licences came earlier than expected because Beijing wants to see more progress in the opening up of China’s financial markets. But the official cautioned that the regulator is unlikely to grant further approvals soon as some additional regulations needed to be finalised.
Four other banks have submitted applications for Type A licences so far. Of those, HSBC and Standard Chartered already hold Type B licences, while Citigroup and JP Morgan are only able to act as more junior syndicate members on corporate bond deals.
The choice of the first two Type A licencees also raised a few eyebrows. Some market participants speculated whether the two US banks had been omitted from the initial batch of approvals because of trade tensions between the US and China.
HSBC’s omission is even more conspicuous as it was the first foreign bank to receive a Type B licence in 2017. In contrast, Deutsche only received approval to act as part of an underwriting syndicate for corporate bond deals last July and has not previously held a Type B licence.
Relations between Beijing and HSBC have become strained recently because of the bank’s cooperation with US authorities in their case against Huawei chief financial officer Meng Wanzhou. It was left off a panel of banks last month that will determine China’s new benchmark lending rate, the loan prime rate, in an apparent snub.
At roughly US$13trn, China is home to the third largest bond market in the world after the US and Japan. Global banks are confident that they will be able to increase their market share there as Beijing has been gradually removing some of the previous restrictions on them operating onshore.
But some market participants have queried whether international banks will make any inroads because of the fierce competition from entrenched Chinese rivals.
“We are not worried about them coming in,” said a manager at a Chinese bank. “A lot of opportunities come from our local branches that have built long-term relationships with local issuers. It will take a while for foreign banks to find more domestic investors.”
Deutsche’s Fischer is unperturbed, however.
“It’s true that it is a competitive market but that’s often the case elsewhere too. We’re not planning on taking top spot in the onshore league tables any time soon, but there are definitely solutions we can offer by leveraging our international network that other banks can’t provide.”