China December forex reserves fall for sixth month, near $3 trillion level

China's foreign exchange reserves fell to near six-year lows in December, but held just above the critical $3 trillion level (2.44 trillion pounds), as authorities stepped in to support the weakening yuan ahead of U.S. President-elect Donald Trump's inauguration.

China's reserves shrank by $41 billion in December, slightly less than feared but the sixth straight month of declines, data showed on Saturday, after a week in which Beijing moved aggressively to punish those betting against the currency and make it harder for money to get out of the country.

Analysts had forecast a drop of $51 billion.

For the year as a whole, China's reserves fell nearly $320 billion to $3.011 trillion, on top of a record drop of $513 billion in 2015.

While the $3 trillion mark is not seen as a firm "line in the sand" for Beijing, concerns are swirling in global financial markets over the speed with which the country is depleting its ammunition to defend the currency and staunch capital outflows.

Some analysts estimate it needs to retain a minimum of $2.6 trillion to $2.8 trillion under the International Monetary Fund's (IMF's) adequacy measures.

If pressure on the yuan persists, analysts suspect China will continue to tighten the screws on outflows via administrative and regulatory means, while pouncing sporadically on short sellers in forex markets to discourage them from building up excessive bets against the currency.

But if it continues to burn through reserves at a rapid rate, some strategists believe China's leaders may have little choice but to sanction another big "one-off" devaluation like that in 2015, which would likely roil global financial markets and stoke tensions with the new Trump administration.

The yuan depreciated 6.6 percent against the surging dollar in 2016, its biggest one-year loss since 1994, and is expected to weaken further this year if the dollar's rally has legs.

Adding to the pressure, Trump has vowed to label China a currency manipulator on his first day in office, and has threatened to slap huge tariffs on imports of Chinese goods.

That has left Chinese eager to get money out of the country, creating what some researchers describe as a potentially destructive negative feedback loop, where fears of further yuan falls spur outflows that pile fresh pressure on the currency.

"For 2016 as a whole we estimate total capital outflows to have been around $710 billion," Capital Economics' China economist Chang Liu told Reuters in an email.

Capital Economics estimated net outflows in November and December alone were $76 billion and $66 billion, respectively.

The main reason China's forex reserves fell in 2016 was because the central bank used them to stabilise the yuan, the country's foreign exchange regulator said in a statement after the data.

With the dollar gaining ground, a decline in the value of other currencies held by China also contributed to the decline, the State Administration of Foreign Exchange (SAFE) said.

"Forex reserves are likely to fall again in January," China's SWS MU Fund Management said in a note, predicting the U.S. economy and the dollar would continue to strengthen.

CLAMPDOWN ON OUTFLOWS TIGHTENS

China has stepped up efforts in recent weeks to shore up the yuan and curb capital outflows, sparking speculation it wants a firm grip on the currency ahead of Trump's inauguration on Jan. 20 and the long Lunar New Year holidays at the end of the month.

State banks have bought yuan and sold dollars and regulators have tightened restrictions on individuals and companies who want to move funds out of the country, while denying they are imposing fresh capital controls.

This week the central bank also set higher daily guidance rates for the yuan, hiking it the most in a decade on Friday, and Beijing was suspected of pushing up yuan borrowing costs in Hong Kong to discourage offshore investors from making bearish bets on the currency. [CNY/]

SAFE said in late December that net cross-border capital outflows were expected to narrow in the fourth quarter in 2016, while the People's Bank of China (PBOC) said last week that it would push reforms of the yuan regime, while keeping the currency basically stable in 2017.

The PBOC also raised reporting requirements for overseas transfers last Friday. The reporting threshold for cash and overseas transfers was cut to just 50,000 yuan ($7,230) from 200,000 yuan.

Regulators recently said they would step up monitoring of individual foreign exchange purchases to close loopholes, but the $50,000 yearly quota would not change.

While the yuan has soared this week as China bears down on the market, a Reuters poll showed it is expected to slide at least 4 percent this year, largely as expectations of interest rate hikes in the United States drive the dollar higher.

(Reporting by Cheng Fang and Sue-Lin Wong; Editing by Kim Coghill)

From the desk of Ruters dated 07th January, 2017

MCB, NIB to seek shareholders’ approval for merger

KARACHI: The MCB Bank Limited and NIB Bank have scheduled extraordinary general meeting (EOGM) on January 23 to seek approval of their respective shareholders for the merger of NIB Bank into MCB Bank, notices issued to the bourse suggest.

MCB has obtained the approval of its board of directors to proceed with the amalgamation scheme, as a result of which the entire undertaking of NIB Bank, including all properties, assets, receivables, liabilities and all other rights and obligations would  stand amalgamated and merged with and into MCB Bank.

The amalgamation would be effective by way of a scheme of amalgamation in accordance with the provisions of Section 48 of the Banking Companies Ordinance, 1962, which is required to be approved by the shareholders of the MCB Bank through two-thirds majority votes, present either in person or by proxy at the EOGM and sanctioned by the State Bank of Pakistan.

Pursuant to the scheme of amalgamation, every person who stands registered as the holder of any ordinary share of NIB Bank will be entitled to receive one new ordinary share of the MCB Bank for every 140.043 ordinary shares of NIB Bank held by the shareholders of the bank.

Published in the The News,January 07th 2017.

Banking deposits grow 20pc to Rs. 11.2 trln in 2016

KARACHI: Deposits at banks rose to Rs11.2 trillion in December 2016, the highest level in three years, which augured well for the financial sector, a brokerage reported on Friday.

Bank deposits came in at Rs9.3 trillion in December 2015. Deposits are increasing gradually after experiencing withdrawal following the increase in withholding tax on cash transactions last year. Moreover, a slowdown in real estate activity is also resisting deposits outflows. 

Deposits climbed to Rs11 trillion during the third quarter (July-September) of 2016. Deposits fell in the last couple of years due to monetary easing and consequent fall in minimum savings rate and imposition of withholding tax on banking transactions.

“A 20 percent year-on-year growth in deposits is significantly higher than historical average growth of 12 percent during the last three years,” Umair Naseer, an analyst at Topline Securities Limited, said. “Strong deposit growth bodes well for the banks as volumetric deposits growth remain the key earning driver in low interest rate environment.”

Analysts are unanimous that banks must increase their efforts for deposit mobilisation, which are the major source of their funding.

Deposits also increased seven percent on month-on-month basis in the same month of the last calendar year. “The abnormal month-on-month jump in deposits can be due to the yearend phenomenon and this will adjust in the upcoming weeks,” Naseer said.

Some analysts see bank deposits to grow at 13-15 percent this year.  A higher inflow of deposits was also attributed to private sector and public sector deposits at banks.

The government placed more money—as a part of their increased borrowing from the State Bank—with domestic banks.    

The advances to the private sector rose 17 percent to Rs5.6 trillion in December last year from Rs4.8 trillion in the corresponding month of the previous year.

Investments were up eight percent to Rs7.2 trillion.

Improvement in bank loans showed pick up in credit demand from businesses amid broad consensus about the country’s cheery economic prospects.

The increased pace of work on infrastructure and CPEC-related projects would boost the appetite for bank lending in 2017.

The SBP key policy rate stands at 5.75 percent, which is at a 42-year low. Soft interest rate fuelled surge in advances from banks during the last year.

Banking deposits stood at Rs10.6 trillion and advances amounted to Rs5.3 trillion as of December 23, 2016.

Improvement in advance also indicated increased credit demand, initiation of CPEC (China-Pakistan Economic Corridor) projects and improved macroeconomic indicators.

Banks are also focusing on high-yielding consumer (product) growth to support their margins and profitability.

The SBP, in its report, said the private sector credit is expected to take a boost from improving demand conditions as implied by growth in manufacturing sector, better energy supplies, especially to the manufacturing sector, growing momentum of CPEC-related activities, and, the lagged impact of easy monetary policy.

“Moreover, the government reliance for budgetary borrowing away from the banking sector (to the central bank) may also induce banks to go for alternative investment avenues of private sector lending,” it said.

The report said the spread between lending and deposit rate is shrinking in the wake of easy monetary conditions. “This coupled with falling yield on treasury investments were already taking a toll on the sector’s profitability,” it added.

“However, it is expected that the decelerating profitability may further push banks towards their core - and higher yielding - business of lending.”

It said the banking sector remains sound and resilient on an overall basis. “However, the expected growth in the private sector credit will increase the quantum of risk weighted assets,” it added.

“At the same time, the slowdown in profitability may hamper the banks’ ability to plough back profits and support capital base. This might put downward pressure on the capital adequacy ratio.”

Published in the The News, January 07th 2017.

BANK INDONESIA STILL HAS ROOM FOR MONETARY EASING

JAKARTA: Indonesia's central bank still sees room for easing monetary policy, but will keep an eye on inflation risks, a deputy governor said on Friday.

"If we look at domestic conditions and see conducive conditions, of course there is still some room for easing," Bank Indonesia Deputy Governor Perry Warjiyo told reporters.

"To push for growth, we are using liquidity more (and looking at) how to push liquidity so that the banking sector issues more credit," he added.

Warjiyo said loan growth in 2016 was likely around 9 percent.

The Financial Services Authority targets lending to increase 13.5 percent this year.

Bank Indonesia cut its benchmark interest rate six times in 2016, by a total of 150 basis points, in a bid to get banks to lend more and to lift the economic growth rate.

Copyright Reuters, 2017

Published inBusiness Recorder, January 06th 2017.

CHILE’S CENTRAL BANK SAYS IT WILL NOT ISSUE NEW BONDS IN 2017

SANTIAGO: Chile's central bank said on Wednesday it has no plans to issue new bonds in 2017, choosing instead to issue promissory notes to partially "absorb" maturing debt in order to manage liquidity in the local market.

The bank said 1.7 trillion pesos ($2.53 billion) of debt is due to mature this year, of which 950 billion pesos ($1.41 billion) will be absorbed by central bank notes, known as PDBCs in Spanish.

The PDBCs "have the purpose of appropriately managing liquidity in the local market," the central bank said in a press release.

It added that its debt issuance schedule was subject to change as market conditions evolve.

Copyright Reuters, 2017

 Published in Business Recorder, January 04th 2017.

DEUTSCHE BANK AGREES TO PAY $95MN TO SETTLE US TAX FRAUD CASE

NEW YORK: Deutsche Bank, Germany's biggest bank, has agreed to pay $95 million to settle a tax fraud case brought by the US Justice Department, the federal prosecutor in charge has announced.

Preet Bharara, the US attorney for the Southern District of New York, said Deutsche Bank used a "web of shell companies and calculated transactions" to try to evade paying tens of millions of dollars in taxes.

The US government "has made Deutsche Bank admit to its actions designed to avoid taxes and pay $95 million to the United States to account for this conduct," the prosecutor said in a statement Wednesday.

The case dates back to 2000 with Deutsche Bank's acquisition of a US holding company, Charter, which had stock in Bristol-Myers Squibb, the pharmaceutical company.

To avoid paying high taxes on the gain from the sale of the stock, Deutsche Bank is alleged to have arranged to sell it to a shell company, and then to buy it back.

The transaction cleansed Deutsche Bank's gain, sticking the shell company with the $52 million tax bill.

The shell company, BMY, tried to offset its gain with foreign currency losses, but US tax authorities concluded the losses were from a fraudulent tax shelter that Deutsche Bank also was involved in.

Under the settlement, the German bank admitted the transaction was "pre-planned" and that it was designed to avoid the tax liability associated with the stock.

It knew the shell company had no material assets and no operating business, and so could not pay the taxes resulting from the stock sale.

It was the latest move by Deutsche Bank to settle pending court cases in the United States.

Last month, it agreed to pay $7.2 billion to settle probes into the sales of toxic mortgage bonds that contributed to the 2008 financial crisis.

Copyright AFP (Agence France-Press), 2017

 Published in Business Recorder, January 05th 2017.

ROMANIA CENTRAL BANK HOLDS RATES, SAYS BUDGET IMPACT UNCLEAR

BUCHAREST: Romania's central bank kept its benchmark interest rate unchanged at a record low of 1.75 percent on Friday, striking a balance between the twin impacts of negative inflation and the government's fiscal expansion plans.

Central Bank Governor Mugur Isarescu said inflation would return to positive territory in the first quarter, but that it would be lower than initially forecast.

Consumer prices fell a greater-than-expected 0.7 percent on the year in November and were in negative territory throughout 2016 as value-added tax was cut and energy prices fell.

The central bank, which targets inflation at 1.5-3.5 percent, had estimated it at -0.4 percent at the end of 2016, jumping to 2.1 percent by the end of 2017. "The most recent assessment reconfirms the outlook of inflation returning to positive territory in the first quarter of 2017," Isarescu told reporters. "The range in which annual inflation is expected to be is, however, lower (than forecast)."

He said risks to the inflation outlook stemmed in part from "the post-election situation", adding that it was too early to say how the government's 2017 budget plan, which has yet to be drafted, might influence future monetary policy decisions.

The leftist Social Democrats returned to power in elections in mid-December after campaigning on the promise of wage and pension hikes, and the government they head was sworn in this week. "The governing programme has many aspects which point to a budget structure with many novelties," Isarescu added.

He said other risks to the inflation outlook stemmed from external factors such as concerns over euro zone growth, European banking issues and negotiations over Britain leaving the EU. The central bank will release minutes of Friday's policy meeting next week and its new inflation forecasts in February.

ING Romania chief economist Ciprian Dascalu said in a note that while approval of the 2017 budget was still pending, "likely significant stimulus versus 2016 might call for a slightly hawkish tone."

Copyright Reuters, 2017

Published in Business Recorder, January 06th 2017.