IFC, StanChart to boost RMB-denominated trade finance

IFC, a World Bank member, and banking multinational Standard Chartered have signed a risk sharing facility, which will increase the amount of Renminbi-denominated trade finance in emerging markets, an IFC statement said Tuesday.

The service will be available to Chinese banks, as well as corporates and businesses in China and across Asia and other emerging markets involved in imports and exports to the country, it said.

This marks IFC's first venture into RMB-denominated cross-border trade finance.

The facility of up to 3 billion yuan (about 500 million U.S. dollars) is funded with 250 million U.S. dollars from Standard Chartered and 100 million U.S. dollars from IFC in a 50:50 risk participation agreement.

An additional 100 million U.S. dollars will be provided by Korea Development Bank, as well as 50 million U.S. dollars from Swiss Re Corporate Solutions.

During the three-year life of the program, it is expected to finance trade flows of over 6 billion U.S. dollars, according to IFC.

"With 28 percent of China's international trade expected to be denominated in the RMB by 2020, we are confident that this program will play a key role in enabling trade in a currency that is heralding major changes in the financial system," said Standard Chartered Group CEO Peter Sands.

By reducing trading costs and increasing the participation of smaller, under-represented banks in the RMB trade finance market, this investment will allow suppliers of agricultural products, equipment and other essential goods to reach new markets, said IFC Executive Vice President and CEO Cai Jinyong.

Over the past three years, RMB trade finance has accelerated significantly with an increasing proportion of China's trade now settled in the currency.

Funding transactions in RMB provides the benefit of reducing currency risks and transaction costs that have increased due to the volatility of the U.S. dollar and RMB exchange rate, the IFC said in the statement.

The program is expected to create additional capacity to spur the growth of RMB trade finance, particularly via smaller, under-represented banks, it added.