CNH spread
13 June 2011
Time to shine a little spotlight on one of HK's less efficient markets - the price that banks charge individuals for buying and selling the HK (offshore) version of the Chinese Yuan, known locally as the CNH, to distinguish it from the mainland CNY, the official (ISO 4217) currency code for what many call the RMB. As HK readers will know, residents with a HK Identity Card can convert up to CNH 20,000 per day in either or both directions. What fewer may know is that this is a per-bank limit, so if you want to do more than that, you can just open CNH accounts with more banks. That could come in handy if there is ever a rush for the exits.
The distinction between CNH and CNY is more than semantic - there are limits on how much of your CNH per day you can actually send or take to spend on the mainland, so the CNH is really a separate currency which happens to be correlated with CNY so long as there is some convertibility. That's why there is a yawning gap in the deposit interest rates between CNH in HK and CNY on the mainland, because the CNH is in a liquidity trap in HK, with nowhere to go. For example, a 3-month CNY deposit at HSBC in the mainland will get you 2.85% p.a., but a 3-month CNH deposit at the same bank in HK gets you 0.55%. So for most HK savers (whose base currency is HKD), the CNH is just a bet on CNY appreciation, which could just as easily go into reverse if China hits a rough patch.
Webb-site has accessed the rates for premium customers at 4 HK banks, including two of the three large banks which issue banknotes in HK, one bank with a mainland parent and one with a US parent. The rates were taken in a 9-minute interval between 11:43 and 11:52 this morning, although the time and absolute rate doesn't really matter, because we have seen the same pattern of bid-offer spreads over several months. These were live rates for transactions (of CNH 20,000) rather than indicative rates on a web site. Here are the rates, in terms of HKD per CNY, with the best figures in bold:
| Bank | Bid | Ask | Spread | Spread % |
|---|---|---|---|---|
| HSBC (Premier) | 1.1964 | 1.2041 | 0.0077 | 0.64% |
| China Construction Bank (Asia) (Premier) | 1.1990 | 1.2080 | 0.0090 | 0.75% |
| Standard Chartered (Priority/Preferred) | 1.1960 | 1.2072 | 0.0112 | 0.93% |
| Citibank (Citigold) | 1.1887 | 1.2163 | 0.0276 | 2.30% |
| Best bid/ask | 1.1990 | 1.2041 | 0.0051 | 0.42% |
Your mileage may vary - these are accounts requiring total relationship balances of HK$1m to avoid monthly fees (except Standard Chartered, which has the same rates for "Preferred" accounts with balances of HK$100k as it does for "Priority" accounts with balances of $1m).
What the table shows is that HSBC offers the smallest bid-ask spread and the best rate to buy CNH with HKD, while CCB (Asia) has the best bid rate if you are minded to convert back to HKD. Standard Chartered has a wider spread than both, but comes second if you are buying CNH. By opening accounts at both HSBC and CCB (Asia), you could synthesise a spread of just $0.0051, or 0.42% of the mid-rate. You can move money between them for free by opening CNH current accounts and writing yourself cheques. Given that CNH savings accounts are only paying about 0.5% interest (compared with 0.01% in HKD), it will take you about 11 months to earn back the FX spread if there is no appreciation.
Poor old Citibank - in the words of the Prince of Morocco, all that glisters is not gold, or Citigold in this case. They are not even competitive with a spread of 2.30%, more than 3 times as wide as HSBC, and unlike the other 3, they don't yet have CNH checking accounts. Citibank is apparently more interested in selling you fee-earning investment products than offering competitive exchange rates.
© Webb-site.com, 2011
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