House of the year, Hong Kong: Crédit Agricole CIB

Once again, Crédit Agricole Corporate and Investment Bank (CIB) has demonstrated a commitment to Hong Kong’s financial market infrastructure that goes above and beyond simply meeting the needs of its clients, this time by playing a pivotal role in kickstarting the CNH repo market: a vital tool if cross-border trading of derivatives with the mainland is ever to take off.

“We are very committed to building a better market infrastructure for our clients, other banks and the regulators,” says John Luk, head of emerging markets trading in Hong Kong. “Hong Kong has positioned itself as a key renminbi risk management centre. We need better infrastructure to further develop the market and create new opportunities.”

In July, Hong Kong Exchanges and Clearing (HKEX) announced that it was working in partnership with China Foreign Exchange Trade System and Shanghai Clearing House to develop a mutual access programme for interbank interest rate swap markets.

This initiative, known as Swap Connect, is expected to be launched by the end of the year. Being able to obtain stable CNH funding will be central to its success.

“Previously, the only way to get CNH funding was via forex swaps or using CNH deposits,” says Gary Lo, head of offshore China trading at the bank. “However, the forex market is very volatile and depends on where one borrows the dollar, while the CNH deposit market is fairly illiquid.”

This is why, in February, Crédit Agricole CIB teamed up with the Hong Kong branch of Bank of China in order to launch the first ever CNH repo, using Chinese government bonds (CGBs) and bills issued by the People’s Bank of China (PBoC).

“This is a very significant trade because it provides a much more stable way to access CNH funding,” says Lo.

Crédit Agricole CIB is not only the pioneer of this trade, but has also been actively promoting wider use of the product among financial institutions in Hong Kong, so as to bring more liquidity to the market.

“With PBoC bills repo market becoming more active, we expect an improvement in CNH funding market stability,” says Lo. “The Swap Connect programme is launching soon [and] one wishlist is to be able to use PBoC bills as collateral with the HKEX. If this is possible, it would save banks’ funding costs and boost the attractiveness of holding PBoC bills as an asset.”

Leading the way

This repo trade is only one in a long series of examples that demonstrates the French bank’s long-term commitment to Hong Kong.

Crédit Agricole CIB takes a lot of pride, for example, in being able to help with the development of the fixed income market and, as one of the top arrangers for Hong Kong-dollar denominated bonds over the past four years (in terms of both number of issuance and size of notional), it is in a good position to do so.

Between 2018 and 2022, Crédit Agricole CIB helped arrange 306 bond issuances, with total notional value of HK$108.2 billion ($13.8 billion), making it the second largest arranger for the instrument after HSBC. Looking at just the awards period on its own – between June 2021 and June 2022 – Crédit Agricole CIB helped arrange 85 bond issuances to the tune of HK$22.5 billion.

Last September, Crédit Agricole CIB was appointed a designated market-maker for Southbound Bond Connect. Only 12 other banks made it on to the list: three from Europe, two from America and the rest coming from China or Japan.

Another landmark moment came in May this year, when Crédit Agricole CIB participated in the primary auction of Hong Kong’s first ever 20-year government bond.

Hong Kong suffers from a lack of high quality long-tenor bonds denominated in Hong Kong dollars, despite a rising demand for such assets from pension funds and life insurers. The 20-year issuance aims at promoting the further development of the Hong Kong bond market by lengthening the yield curve and providing a benchmark to the market for long tenor issuance.

Only primary dealers of the Hong Kong Government Bond programme – of which there are 10 – can participate in primary auctions.

Crédit Agricole CIB has also been extremely active over the past few years in helping Hong Kong make the changeover from the Hong Kong Interbank Offered Rate (Hibor) to the alternative reference rate for the Hong Kong Dollar Overnight Index Average (Honia).

In November, the bank participated in the primary auction for the first ever floating-rate note linked to this new benchmark.

“Crédit Agricole is very strong in the Hong Kong dollar bond market, and we are always keen to be at the forefront of innovation. This is how we can make sure we bring the most added value to clients,” says Lo. “We’re constantly striving to build a better platform for the market and improve access to assets. In this way, we can help our clients better manage their risks.”

Crédit Agricole CIB’s efforts have certainly resonated well with clients.

The head of treasury for the Hong Kong branch of one Chinese bank says: “Crédit Agricole have a great business behind them. If I ask them for any hedging, especially in forex and interest rate swaps, they can quote me a very narrow spread. This is very important for my bank because the size of our trades can be huge.”

Furthermore, says the treasury head, the bank has excellent risk transfer ability due to its vast client network – and that is important for this particular bank because, even when the offshore CNH market is being squeezed, Crédit Agricole CIB can still offer attractive renminbi trades.

It is this ease with which Crédit Agricole CIB straddles the two worlds – the markets of Europe and the US on the one hand and those of northern Asia on the other – that gives the French bank such an advantage when facing Hong Kong.