Central Bank: Supports domestic banking financial institutions and overseas institutions to conduct standardized cross-border RMB interbank financing business

The People’s Bank of China issued the “Notice on Matters Related to Cross-Border Interbank RMB Financing Business of Banking Financial Institutions” on February 26, supporting domestic banking financial institutions to conduct RMB cross-border interbank financing business in a standardized manner. The notice takes effect from the date of issuance.

It is understood that RMB cross-border interbank financing includes various businesses such as account financing and bond repurchase, where domestic banks lend to and borrow from foreign institutions, providing RMB liquidity to offshore markets and promoting the cross-border use of RMB. The lending side is an important channel for domestic banks to supply RMB liquidity to offshore markets and facilitate RMB internationalization.

The “Notice” covers all types of RMB cross-border interbank financing businesses, linking the net RMB outflow balance of banking financial institutions with their capital levels and financial strength to promote reasonable business conduct. It sets macroprudential management parameters and implements countercyclical adjustments based on market conditions. These parameters are designed considering market demand and the operational status of banking financial institutions, helping to provide stable liquidity for the offshore RMB market and support the cross-border use of RMB.

Regarding the purpose of the “Notice”, experts explain that there are four main aspects: First, to enhance the openness of the capital account and help build a new development pattern of mutual promotion between domestic and international dual circulation. Second, to support banks in providing liquidity to the offshore RMB market, fully meeting overseas RMB funding needs, advancing RMB internationalization, and supporting the development of the offshore RMB market. Third, to strengthen RMB financing functions. Currently, RMB funding costs are relatively low, giving financing advantages. The “Notice” clearly supports banks in providing liquidity to offshore markets, which helps further stimulate overseas RMB financing demand, thereby promoting RMB use in cross-border trade and investment, forming a comprehensive RMB international usage cycle across industries and scenarios, and better supporting global economic integration. Fourth, to improve macroprudential management of two-way cross-border capital flows.

Regarding the main content of the “Notice”, a relevant person from the People’s Bank of China explained that: First, the scope of the “Notice” is determined based on the substantive nature of the business. Following the principle that “substance over form,” RMB financing businesses with actual creditor-debtor relationships between domestic banks and foreign institutions are included within the scope, covering existing types of RMB cross-border interbank financing businesses, and similarly applicable to future businesses of the same nature.

Second, a countercyclical adjustment mechanism is introduced. It clarifies that the net RMB outflow balance of domestic banks’ cross-border interbank financing is linked to their capital levels and financial strength, with adjustments made through cross-border business parameters and macroprudential parameters. The initial setting of these parameters balances business development and risk prevention needs. The People’s Bank of China will consider factors such as the development of the offshore RMB market, cross-border capital flows, and banks’ business conditions to adjust the parameters as needed.

Third, domestic banks are supported to meet market demand and conduct business legally and compliantly. The “Notice” specifies that banks should have strong international settlement capabilities, establish sound risk management and internal control mechanisms, and be managed by their head offices or foreign bank branches (domestic management banks).

Regarding the scope of institutions applicable to the “Notice,” the aforementioned person stated that the scope includes legally established domestic banks with international settlement capabilities, including Chinese-funded banks, wholly foreign-owned banks, Sino-foreign joint venture banks, and foreign bank branches in China. Rural financial institutions (including rural commercial banks, rural cooperative banks, rural credit cooperatives, village banks, etc.) should focus on their main business and serve the “three rural” areas. Considering their international settlement capabilities, foreign-related business volume, and cross-border risk management, the “Notice” clarifies that rural financial institutions generally are not permitted to conduct RMB cross-border interbank lending businesses, while other cross-border RMB businesses can proceed normally. From a risk control perspective, the “Notice” also states that rural financial institutions with certain qualifications may conduct RMB cross-border interbank lending.

The People’s Bank of China stated that moving forward, it will steadily promote the implementation of the “Notice” and effectively leverage cross-border interbank financing to serve the real economy and promote healthy development of the offshore RMB market.