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Local Markets Compendium 2014
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Local Markets Compendium 2014
Preface
To paraphrase Mark Twain, the reports of the death of EM bond markets have been greatly exaggerated. Increased global
allocations to local EM bond markets have been not cyclical but primarily structural in nature, reflecting these markets’ rising
economic importance. The BIS triennial FX survey also reflects this shift, highlighting rapid growth in usage of EM currencies.
In this third edition of the Local Markets Compendium, we continue our coverage of 41 markets across our footprint of Asia,
Africa and the Middle East, as well as the key markets of Brazil and Mexico. The typical view of emerging local-currency bond
markets is shaped by index inclusion, but as we show throughout this compendium, this definition excludes many countries that
are joining the investable universe.
In previous editions, we showed that focusing solely on foreign investors misses the importance of local participants. In this
edition, we go further still and show that the broad ‘foreign investor’ label misses important differences within this category. This
is not just a question of taxonomy. In the same way that a diverse set of participants between foreign and domestic sources
improves market liquidity, diversity among foreign investors contributes to variations in behaviour under different market
conditions. We show that dedicated EM bond funds represent slightly less than half of all foreign investors. As a result of this
diversity, the scale of selling in aggregate has been far smaller than most reports suggest.
We have highlighted since our first edition that while foreign investor demand is critical at the margin, the non-bank financial
institution (NBFI) sector is more important in aggregate. Global allocations to emerging markets are typically driven in the first
instance by expectations of sustained growth outperformance relative to developed markets. This growth has a critical
relationship with domestic savings growth exceeding income growth. As the pace of foreign buying slows, these domestic
savings pools will become more important sources of demand.
Shifting these savings pools from potential to actual sources of demand requires an assessment of two factors: the ability and
willingness to provide that demand. In contrast with developed markets, we find that aggregate allocations to fixed income by
pension funds and insurance companies have declined in the past few years, creating capacity for bond buying. The willingness
to buy will, however, see greater variation across markets.
We hope this publication remains your definitive source for local bond markets. Our country pages include all of the key
information on each market, including regulations to monetary policy, account opening and trade settlement, and details on the
range of market participants.
Finally, we would like to thank all of our Standard Chartered Global Research colleagues (particularly co-heads of Local Markets
Strategy, Thomas Harr and Michael Trounce), as well as other colleagues across the bank, without whom this compendium
would not have been possible.
Will Oswald
Global Head, FICC Research
Standard Chartered Bank
Local Markets Compendium 2014
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ii
Local Markets Compendium 2014
Table of contents
Foreign investors – Cyclical versus structural
Domestic non-bank financial institutions
The rise of the CNY
2
11
16
Asia
Bangladesh
China
Offshore Renminbi
Hong Kong
India
Indonesia
Malaysia
Mongolia
Pakistan
Philippines
Singapore
South Korea
Sri Lanka
Taiwan
Thailand
Vietnam
104
112
118
124
130
136
Oman
Qatar
Saudi Arabia
Turkey
United Arab Emirates
142
148
154
160
166
Angola
Botswana
Cameroon
174
178
182
Mozambique*
Nigeria
South Africa
206
210
216
Côte d'Ivoire
Ghana
Kenya
Mauritius
186
190
196
202
Tanzania
Uganda
Zambia
222
226
232
240
Mexico
246
Appendix 1 – Foreign exchange framework
252
Appendix 5 – Size of domestic investor base
260
Appendix 2 – Foreign exchange products
Appendix 3 – Rates: Bonds
Appendix 4 – Rates: Swaps
255
257
259
Appendix 6 – Global bond market indices
Appendix 7 – Global government debt treemap
Appendix 8 – Global indicator maps
261
262
263
20
24
30
36
42
48
54
60
62
68
74
80
86
92
98
Middle East and North Africa
Bahrain
Egypt
Jordan
Kuwait
Lebanon
Sub-Saharan Africa
Latin America
Brazil
Appendices
Contributors’ contact details
267
Lead authors
Will Oswald, Global Head of FICC Research
Michael Trounce, Head of Local Markets Strategy, West
Thomas Harr, Head of Local Markets Strategy, East
Lawrence Lai, Research Analyst
Jennifer Kusuma, Rates Strategist
Becky Liu, Greater China Rates Strategist
Delphine Arrighi, Senior Local Markets Strategist
Nagaraj Kulkarni, Senior Rates Strategist
Danny Suwanapruti, Senior Rates Strategist
*New countries for this edition of the Local Markets Compendium
1
Local Markets Compendium 2014
Foreign investors – Cyclical versus structural
Thomas Harr | Michael Trounce | Lawrence Lai
Foreign investors are getting larger and more diverse
We show the size and growth of
overall foreign demand, and the
different types of foreign investors
and demand
Foreign investors continue to grow in importance in local-currency emerging markets
(EM). In this article, we show the size and growth of the foreign investor base and the
reasons why foreigners have been – and will continue to be – attracted to local markets.
We also break new ground in showing the different kinds of foreign investors present in
our markets, and in examining different types of foreign investor demand for different
markets. We show that some markets are dominated by foreign investors with shorterterm (more cyclical) investment horizons, such as Thailand. Other markets are dominated
by foreign investors with longer-term (more structural) horizons, such as Korea.
Understanding and quantifying
different foreign investor
preferences and presences in
different markets helps forecast
relative price action
Price dynamics during both normal market conditions and periods of market turmoil
will vary across different markets where different kinds of foreign investors with
different preferences are present. For example, in Thailand, the large build-up of
bond holdings of highly cyclical investors (foreign banks, leveraged investors) and
the high importance of cyclical investors (EM-dedicated funds) in the foreign investor
base have been driving price rises and declines in 2013. The preference of structural
investors such as sovereign wealth funds and central banks for lower-yielding, liquid,
high-quality credits helps to explain less volatile Korean bond price dynamics during
the same period. Understanding and quantifying this heterogeneity of demand helps
us to forecast bond prices.
Sizing the growth in foreign holdings: Tracking USD 540bn of holdings
We capture foreign holdings in all
major EM markets
We continuously capture every available nationally sourced datapoint on foreign
holdings in all major EM local-currency bond markets. We capture the following:
1.
The 12 largest markets in the J.P. Morgan GBI-EM-Global Diversified (JPM GBIEMGD) Index, which together account for close to 95% of the index by country
weights, and where foreign investors held USD 540bn of EM debt as of 31 July
2013 (Figure 1)
Other major EM markets, namely Korea and India
Smaller local-currency bond markets in our footprint regions of Asia, Africa and
the Middle East, including Ghana, Kenya and Uganda
2.
3.
We provide insight on the major markets (1 and 2) in our monthly SC FIRST
publication (see On the Ground, 16 September 2013, ‘SC FIRST – EM/DM bond
spreads to narrow’). We provide data on all three market groups in this, the latest
edition of the Local Markets Compendium.
Figure 1: Trend increase in foreign holdings of EM bonds to USD 540bn
Foreign holdings in USD terms and in a synthetic local index (USD bn)
700
Synthetic local
600
500
USD bn
400
300
200
100
0
May-08
May-09
May-10
Source: National sources, Standard Chartered Research
2
May-11
May-12
May-13
Local Markets Compendium 2014
Explaining the growth in foreign holdings to date
Flows into EM local debt have been
driven by increasing investability,
diversification and value
The USD value of holdings varies with exchange rates as well as with net purchases.
Figure 1 therefore also shows an index that better reflects pure net increases in
stock, and has risen steadily over the years. We think the more cyclical investors, as
well as potentially more structural and even longer-term investors – especially the
public sector – are driven to different degrees by increasing investability, better
diversification and ongoing value.
Local-currency emerging markets have become more investable, enabling foreigners
to increase their holdings. Nigeria was included in the GBI-EMGD in late 2012 on
investability grounds after holding period requirements were dropped. Higher credit
quality improves investability, as evidenced by South Africa’s inclusion in the
Citigroup World Government Bond Indices (WGBI) in mid-2012. South Africa’s
improving credit quality at the time paved the way for index inclusion. Indian policy
makers are currently investigating the costs and benefits of making the Indian bond
market more accessible.
EM government balance sheets are
much better than those in DM
Local-currency emerging markets have also been good sources of diversification and
value. The rise in government debt/GDP ratios in advanced economies has outpaced
that of EM in the post-GFC period (Figure 2). EM local markets started to outperform
DM in 2009, after investors became concerned with the sharp deterioration in DM
sovereign balance sheets as private-sector liabilities moved onto the DM public
balance sheet (Figure 3). Following some months of better EM performance in 2009,
inflows to EM funds and to EM bonds picked up in late 2009. For example, loweryielding markets like Korea, Malaysia and Thailand have attracted large inflows from
foreigners seeking diversification from weakening, formerly high-quality DM credits.
Forecasting future foreign appetite
EM diversification and valuations
should continue to attract inflows to
EM local debt
We believe foreign investors will continue to be attracted to local markets for two
reasons: diversification and ongoing attractive valuations. Many investors are underallocated to EM. Some are under-allocated by benchmark constraint. Newer GDPweighted global bond benchmarks call for 30% of AUM in EM bonds, compared with
10% in traditional market capitalisation-weighted indices. The potential for further
diversification is clear by comparing foreign ownership percentages in EM to most
developed countries, which have a higher proportion of debt held by foreign investors
(see Figure 5).
Figure 2: Government balance sheets are stronger in EM
Figure 3: EM has outperformed DM since the GFC
Debt to GDP in G7 vs. EM (%)
GEMX vs. UST total return
140%
GEMX Total
return index
(unhedged)
150
G7
120%
140
100%
130
80%
120
60%
110
EM
40%
UST total
return Index
100
90
20%
80
Apr-09
0%
2000
2003
2006
2009
2012
Source: IMF WEO (April 2013), Standard Chartered Research
Apr-10
Apr-11
Source: Bloomberg, Standard Chartered Research
3
Apr-12
Apr-13
Local Markets Compendium 2014
Ongoing attractive valuations will also pull foreign investors towards local markets. The
higher yield on offer in EM bond markets is a pull factor (Figure 4). Our work on the
distribution of foreign holdings confirms our view that investors tend to hold systematic
overweight positions in high-yielding markets (and systematic underweights in lowyielding markets) within EM portfolios; in other words, they systematically favour carry
trades. Although this tendency varies in strength over time, we believe that the spread
pick-up will continue to support allocations from DM to EM.
Assessing cyclical versus structural demand for local EM debt
We distinguish between cyclical
and structural demand for local EM
debt
Among foreign investors in EM local debt markets, we believe that different types of
investors generate different types of demand, best characterised as either cyclical
(shorter-term) or structural (longer-term) in nature. Tracking this mix accurately
significantly improves our ability to forecast price dynamics. In our approach, cyclical
investors are those who are more likely to sell when the outlook for local markets
weakens. In almost all cases, structural investors buy as a result of their mandate to
increase long-term allocations to EM, and so are less likely to sell during periods of
weakness. Demand from local investors varies in a similar way; we provide insight on
local investors in the next article.
Events of 2011 and 2013 reveal heterogeneous foreign demand
Foreign investors significantly reduced their holdings of EM bonds from AugustOctober 2011, and again from May-August 2013. This was in contrast to the broad
and steady rise seen during other periods, according to our index of holdings
(Figure 1). Our data also shows sharp declines in foreign ownership of local debt
across countries (Figures 6 and 7). We believe this reveals heterogeneous foreign
demand for EM as a whole, with most investors staying the course but some investors
pulling out. We also believe that it reveals heterogeneous demand across EM
markets, with foreign holdings of local debt falling sharply in some markets – Malaysia,
Turkey, Thailand and Indonesia – and not in others, such as Mexico and Korea.
Linking different types of demand to different investor groups
By gathering data on the holdings
of different investor groups, we get
a sense of the different types of
investor demand
We identify four easily differentiated foreign investor groups. They generate four
differentiated types of demand, classified as more structural or more cyclical.
Gathering data on the holding dynamics of these foreign investor groups also gives
us data on the mix of the different demand categories. The four investor groups are:
(1) EM-dedicated investors, (2) global crossover investors, (3) central banks (CBs)
and sovereign wealth funds (SWFs), and (4) foreign banks and leveraged funds.
Figure 4: EM/DM bond spread has widened recently
Figure 5: Foreign holdings in most EM are relatively low
WGBI vs. GBI-EMGD bond spread (%)
Percentage of marketable debt held by foreign investors, %
12
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
8
GBI-EMGD
6
Spread
4
WGBI
2
0
Mar-08
Mar-09
Mar-10
Mar-11
Mar-12
Mar-13
Source: Standard Chartered Research
„ EM
„ DM
India
Thailand
Philippines
Israel
Brazil
Korea
Canada
Turkey
Czech Republic
Indonesia
United Kingdom
Poland
Mexico
Slovakia
South Africa
Malaysia
Iceland
Russia
New Zealand
Denmark
Spain
Sweden
Hungary
Norway
United States
Peru
Slovenia
France
Austria
Finland
10
Source: OECD, National sources, Standard Chartered Research
4
Local Markets Compendium 2014
Foreign banks and leveraged funds (those with an absolute return target) are the
most cyclical investors under ‘normal’ market conditions, in our view. They will view
EM as ‘hot’ at times and will put large amounts of leveraged capital to work in local
markets, focusing on carry markets. They are quick to withdraw capital when markets
turn down. Large capital inflows to the Indian bond market in early 2013 – and
outflows later in 2013 – were likely driven by this group of investors (as well as
crossover investors), as India is not in the benchmark of EM-dedicated investors and
is not typically held by public-sector investors.
We believe that benchmarked
funds’ demand for EM debt is highly
cyclical during extreme periods
EM-dedicated investors and global crossover investors are also quite cyclical, in our
view. In ‘normal’ times, when benchmark funds face neither large inflows nor
redemptions, we would expect their holdings – both overall and across markets – to be
more steady than those of foreign banks and leveraged funds, as tracking error
constraints limit how far they can diverge from their benchmarks. However, in extreme
periods when benchmark funds face either large inflows or redemptions, they are likely
to become highly cyclical as they are ‘forced’ to buy or sell. Hence, while EM-dedicated
and crossover funds with significant exposure to EM are by definition structurally
exposed to EM, some of the investors who put money into those funds are not. For
example, retail investors – who, according to EPFR, account for around 35-40% of
investors in local-currency bond funds – tend to be highly cyclical, putting money into
EM-dedicated and crossover funds as markets rally and withdrawing during sell-offs.
This highly cyclical behaviour forces these funds to behave cyclically during market
extremes, despite having a long-term mandate towards EM.
CBs and SWFs are the most structural of the foreign investors, in our view. They do
not face redemptions in the same way as private-sector funds, although a sharp fall
in FX reserves or a need to support public finances may lead to a drawdown of
assets. These investors typically invest in higher-quality credits. This should mitigate
the incentive to sell during market stresses, as the underlying assets perform better.
Sizing different demand types through investor group holdings
For EM-dedicated investors, we have hard data on USD 126bn of AUM (taken from
individual fund factsheets); we have country allocations for USD 74bn benchmarked
against the GBI-EMGD and USD 18bn benchmarked against other EM indices. We
believe that GBI-EMGD-benchmarked local-currency funds had total AUM of around
USD 200bn as of 30 September 2013, after recent redemptions and declines in FX
valuations. We also have AUM for blended funds, which we assume are benchmarked
against the GBI-EMGD. To arrive at an estimate for total EM-dedicated allocation, we
scale up the country allocations of USD 74bn benchmarked against the GBI-EMGD to
a total AUM estimated at USD 240bn.
Figure 6: Asia – Sharp fall in MYR foreign holdings
Figure 7: MXN and BRL have been much more stable
Share of fixed-rate debt held by foreigners (%)
Share of fixed-rate debt held by foreigners (%)
50%
60%
MXN
50%
MYR
40%
HUF
PEN
PLN
KRW
BRL
20%
PHP
10%
10%
INR
0%
Jan-08
ZAR
30%
THB
20%
TRY
40%
IDR
30%
Jan-09
Jan-10
Jan-11
Jan-12
RUB
0%
Jan-08
Jan-13
Source: National sources, Standard Chartered Research
Jan-09
Jan-10
Jan-11
Source: National sources, Standard Chartered Research
5
Jan-12
Jan-13
Local Markets Compendium 2014
Similarly, by examining individual fund factsheets for crossover funds (global bond
funds with large EM exposures), we have found country allocations for USD 121bn.
We do not believe that this is a representative sample of global bond funds’ EM
exposure, and hence we do not scale up this data. Instead, we use the ‘hard’ data of
country allocations for the USD 121bn to capture global bond fund allocations to EM
for which we have data.
For sovereign holdings, we have hard data for only a few countries. Until July 2013,
Indonesia published data on the amount of local debt held by central banks (not
including SWFs). The Korea Financial Supervisory Service publishes holdings of
KRW local debt by country. From these country allocations, we estimate the share
held by CBs and SWFs by focusing on the countries with small domestic investor
bases. We use a similar method for Peru. For other countries, we do not have
estimates of holdings by CBs and SWFs.
We estimate that sovereign
investors account for 30-40% of
foreign investors in KRW debt
Based on our conservations with reserve managers, the top three investment criteria
for EM investments are credit rating, market liquidity and FX outlook. Outside of
Korea and Indonesia, the most favoured EM markets among sovereign investors are
China, Singapore, Malaysia, South Africa, Mexico, Brazil and Poland. In contrast, we
believe that sovereign involvement in markets such as the Philippines, Turkey and
Thailand is much smaller. We believe that sovereign investors favour Indonesia over
Thailand because of higher yields, despite Thailand ranking higher on the three
investment criteria of credit ratings, market liquidity and FX outlook.
In Figure 8, we provide estimates of total holdings of EM-dedicated funds based on a
scaled-up version of the country allocations of our sample of USD 74bn and our other
available data. Among the countries in our database, we believe that sovereign
investors account for the largest share of foreign holdings in Korea, and they account
for a significant share in Indonesia. EM-dedicated investors account for a large share
of foreign investors in the bond markets of Russia (RUB), Peru (PEN) and South
Africa (ZAR), followed by Thailand (THB), Indonesia (IDR) and Malaysia (MYR).
Based on our available data, global bond funds are particularly involved in the bond
markets of Hungary (HUF), MYR and Korea (KRW). As highlighted above, we do not
claim to capture all EM allocations of global bond funds. For example, we believe that
global bond funds are also large holders of ZAR bonds following South Africa’s WGBI
inclusion in 2012. In Figure 9, we compare the different foreign investor types’
percentage holdings of the total government bond market.
Figure 8: Sovereigns dominate in KRW
Figure 9: Benchmarked funds are large in MYR bonds
Percentage foreign allocation breakdown by investor type
relative to total foreign holdings*
Percentage foreign allocation breakdown by investor type
relative to total bonds outstanding
Russia
South Africa
Peru
Thailand
Indonesia
Malaysia
Hungary
Poland
Turkey
Brazil
Mexico
India
Philippines
South Korea
Estimated EM-dedicated funds
CBs & SWFs
CBs & SWFs
Estimated EM-dedicated funds
Available global bond funds
Available global bond funds
Foreign banks
Data not available
Foreign banks
Data not available
0%
20%
40%
60%
80%
100%
0%
*Sovereign holdings of KRW and PEN bonds are estimated from the size of domestic investor
bases in individual countries. In Indonesia, sovereign investors refer only to central banks.
Source: Various fund factsheets, national sources, Standard Chartered Research
20%
40%
60%
80%
Source: Various fund factsheets, national sources, Standard Chartered Research
6
100%
Local Markets Compendium 2014
Based on our estimates of the
relative sizes of investor groups, we
would expect foreign demand to be
stickier for Korea; more cyclical for
Thailand
Based on these criteria and our available data, we would expect foreign investors in
Korea to be relatively structural in nature – i.e., stickier during large local-market selloffs. In contrast, foreign investors in Turkey and Thailand are likely to be more cyclical.
Linking recent bond flows to different investor types and demand
To get a better sense of the relative size of the different types of foreign demand in
local debt markets, we analyse foreign flows since May 2013. On 9 May, The Wall
Street Journal published an article by its chief economics correspondent, Jon
Hilsenrath, entitled ‘Fed maps exit from stimulus’. This sparked concern that the Fed
would soon begin to taper, or slow, the pace of quantitative easing. Our database of
foreign holdings indicates that foreigners sold EM bonds in response to this. Since 9
May, foreigners have sold USD 11.5bn in markets for which we have high-frequency
data (IDR, THB, MXN, TRY, HUF and ZAR local-currency bonds). EM local-currency
bond funds have seen USD 9.4bn of outflows during the same period, according to
EPFR data. This shows that some of the investors who held EM bonds on 9 May
were cyclical – because they sold – while some may have bought during this period.
The relative size of selling versus holdings provides insight into the mix of cyclical
versus structural investors in individual markets. During the heavy selling phase from
9 May to 25 June, foreigners were net buyers in some markets: KRW, HUF and PEN
bonds. We view evidence of foreign buying of KRW as part of a wider, unobservable
trend of buying by structural investors during this time. We view HUF and PEN
buying as linked to particular local idiosyncratic stories and less liquid markets.
The market entered a new phase of nuanced buying from 26 June to 22 August. This
allows us to check flow data for evidence of the different types of investor demand
and activity by different investor groups. During this ‘nuanced buying’ phase,
foreigners bought USD 1.74bn of MXN, IDR, PLN, ZAR and PEN bonds, and were
large net sellers (USD 4.9bn) of THB and TRY bonds. Since 23 August, foreigners
have bought USD 3.9bn of MXN and ZAR bonds and, sold USD 1.07bn of THB
bonds. Figures 10 and 11 show foreign selling in local markets during these different
phases, as a percentage of total foreign holdings as of 9 May and in USD terms. We
classify foreign bond selling in the first phase as cyclical.
Thailand – Cyclical investors dominate
Thailand is part of the GBI-EMGD, with an estimated weight of 7.6% as of September
2013. We estimate that EM-dedicated investors account for close to 50% of foreign
holdings of THB bonds, while global bond funds have a marginal share. Given that
sovereign and global bond funds likely have limited involvement in THB bonds, we
believe EM-dedicated funds, foreign banks and leverage funds dominate.
Figure 10: Foreigners bought KRW, sold THB bonds
Figure 11: Heavy foreign selling of TRY bonds
Foreign selling to total foreign holdings since May (%)
Foreign selling since May (USD bn)
Start of buying
(23-Aug to
20-Sep)
10.0%
5.0%
6
4
0.0%
2
-5.0%
0
-10.0%
-15.0%
Strong selling
phase (9-May
to 25-Jun)
-20.0%
Start of buying
(23-Aug to
20-Sep)
Nuanced
buying phase
(25-Jun to 23Aug)
-2
Nuanced
buying phase
(25-Jun to 23Aug)
Strong selling
phase (9-May
to 25-Jun)
-4
-6
-25.0%
-8
KRW HUF PEN MXN PLN ZAR TRY MYR IDR
THB
KRW
Source: National sources, Standard Chartered Research
HUF
PEN
MXN
ZAR
PLN
Source: National sources, Standard Chartered Research
7
IDR
MYR
THB
TRY
Local Markets Compendium 2014
Foreigners were heavy sellers of THB bonds in May-June 2013. This partly reflects
the risk of the imposition of capital controls in April, following sharp FX appreciation
of the Thai baht (THB) and heavy long positioning in local markets at the time (see
Rates Alert, 25 April 2013, ‘Thailand – Risk of Capital Flow Measures’). We also think
this reflects the fact that cyclical investors, including EM-dedicated funds and foreign
banks, make up a large share of the foreign investor base in Thailand (see Figure 8).
When Fed QE3 tapering talk began, foreigners held close to USD 30bn of Thai
bonds. This number appears large assuming that neutral EM-dedicated allocations to
Thailand are around USD 18.2bn (7.6% of USD 240bn). Foreign holdings had been
built up significantly in 2012 and early 2013.
We believe that EM-dedicated
funds, foreign banks and leveraged
funds drive cyclical flows in THB
bonds
This build-up rate – about USD 14bn from end-2011 to March 2013 – appears
inconsistent with the build-up that would be expected from inflows to EM-dedicated
funds and neutral allocations to Thailand. A highly cyclical and speculative element
also appears to have been at work. In particular, foreigners sold Bank of Thailand
(BoT) bonds in Q2, while they held onto government Loan Bonds (see Figure 12).
We believe that foreign banks typically invest in BoT bonds, which have tenors of up
to 4Y. As such, we believe short-term speculative flows were a key driver of the selloff in Thai local markets from May-August.
Korea – Structural investors dominate
Sticky sovereign investors explain
structural flows into KRW bonds
At the other end of the spectrum is Korea, where we estimate that sovereign
investors account for around 30-40% of foreign holdings, while EM-dedicated
investors are very small (see Figure 8). This was evident during the period of Fed
QE3 tapering talk – foreigners were buyers in May-July and sold only in August (see
Figures 10 and 11). Based on estimates of sovereign holdings of Korean bonds, we
observe that CBs and SWFs have broadly maintained their holdings (see Figure 13).
Note that index-based bond funds, which tend to be highly cyclical during stress
periods, are not heavily involved in Korea; this is partly because Korea is not part of
the GBI-EMGD index. During the recent period of stress, when benchmarked funds
faced large redemptions, the limited involvement of benchmark-based funds in KRW
bonds mitigated foreign selling. In sum, foreign involvement in Korean bond markets
appears to be highly structural in nature, and hence less vulnerable to the cyclical
outlook and short-term developments.
Figure 12: Foreigners have sold BoT bonds
Figure 13: Sovereigns have been a buffer for Korean bonds
Foreign holdings of THB LB, BoT bonds (USD bn)*
Total foreign and sovereign holdings of KRW bonds (USD bn)*
30
95
Total foreign
holdings
25
Foreign
holdings
90
45
40
20
85
Gov LB
15
35
80
10
75
BoT bonds
5
0
2008
2009
2010
2011
Estimated CBs
& SWF
holdings
(RHS).
70
Feb-13 Mar-13
2012
*Estimated from current USD-THB rate.
Source: Bank of Thailand, Standard Chartered Research
30
25
Apr-13
May-13
Jun-13
Jul-13
Aug-13
*Estimated from current USD-KRW rate. Sovereign holdings of Korean bonds are estimated
from the size of domestic investor bases in individual countries.
Source: Standard Chartered Research
8
Local Markets Compendium 2014
Malaysia – More cyclical than initially thought
Malaysia is a rather cyclical market
as benchmark funds have faced
large redemptions
Foreigners have also been large sellers of MYR bonds, albeit to a lesser extent than
in Thailand. Malaysia has faced similar idiosyncratic risks to Thailand in recent
months: concerns about a deteriorating current account balance and fiscal deficit.
Foreign holdings of MYR bonds were at a record high of 48.3% as of end-April 2013.
Based on foreign selling from May-August, foreign demand for MYR bonds appears
less cyclical than demand for THB bonds, but more cyclical than demand for KRW
bonds. This may be explained by the fact that sovereign investors make up a larger
share of holdings in Malaysia than in Thailand, while these holdings are smaller than
in Korea. However, during severe stress periods, such as the recent one when EM
and global bond funds faced large redemptions, benchmarked funds may be highly
cyclical and sell EM bonds. This appears to have happened in Malaysia in recent
months, as index-based funds are heavily involved in Malaysia (see Figure 14).
In sum, the weights of sovereign and benchmarked investors in Malaysia relative to
Korea and Thailand explain why foreigners in Malaysia have been less sticky than in
Korea, but slightly stickier than in Thailand.
Indonesia – Cyclical despite the large presence of sovereign investors
Foreigners were large sellers of IDR bonds in May-June, and turned small buyers in
July. This is remarkable given that (1) foreign investors were already underweight IDR
bonds going into May, according to our estimates; and (2) CBs were persistent buyers
of IDR bonds throughout the period (see Figure 15). This reflects idiosyncratic
negative developments in Indonesia, including a widening current account deficit and
poor FX liquidity. However, it also likely reflects the fact that benchmarked funds, as in
the case of Thailand and Malaysia, have faced large redemptions that triggered EM
bond selling (see Figure 8). Hence, despite the large presence of sovereign investors,
foreign demand for IDR local debt appears to be relatively cyclical in nature.
South Africa
South Africa’s 10% weight in the GBI-EMGD index makes it a natural place for EMdedicated investors to position. If, as we believe, USD 240bn of AUM were managed
against this or similar indices, then a 10% weight in South Africa in aggregate would
mean that EM-dedicated investors held around USD 24bn in South Africa. Foreign
holdings in South Africa are substantially higher than this, at USD 40bn. We do not
believe substantial amounts of South African debt are held by the public sector,
although we believe it is held by private-sector funds benchmarked to EM indices that
include South Africa and that are managed on behalf of public-sector clients.
Figure 14: Benchmarked funds dominate in Malaysia
Figure 15: Sovereigns act as a buffer for IDR bonds
Percentage foreign allocation breakdown by investor type
relative to total foreign holdings*
Foreign holdings and CB holdings of IDR bonds (USD bn)*
8
28
THB
CB holdings
(RHS)
Estimated EMdedicated funds
Available global
bond funds
MYR
4
CBs & SWFs
24
Foreign banks
KRW
Foreign
holdings
Data not available
0%
20%
40%
60%
80%
6
26
22
Jan-13
100%
*Estimated from current FX rates. Source: National Sources, Standard Chartered Research
2
0
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
*Estimated from current USD-IDR rate. Source: MoF, Standard Chartered Research
9
Local Markets Compendium 2014
We believe that crossover investors – global bond funds – are large holders of South
Africa due to its inclusion in their indices (it entered the WGBI in 2012) – although we
think that the AUM managed against these indices is lower than that commonly
thought. Thus, we characterise foreign holdings of South Africa as more cyclical, in
that these funds will likely have to sell when they experience short-term outflows (see
Figure 8). Still, the size of leveraged demand for South Africa is probably smaller, as
it is crowded out by the index demand bid from EM-dedicated and global investors,
making it less cyclical. The sell-off of summer 2013 affected South Africa only
modestly, supporting this conclusion.
Conclusion
Since the GFC, foreign investors have substantially increased their exposure to local
EM debt markets. We expect this trend to continue in coming years as underallocated investors diversify into EM. In our view, foreign demand is more cyclical in
Thailand and, to a lesser extent, in Malaysia, Indonesia and South Africa. It is much
more structural in Korea. This has important implications for market behaviour in
these markets. We now turn to the important segment of non-bank
financial institutions.
10
Local Markets Compendium 2014
Domestic non-bank financial institutions
Jennifer Kusuma | Will Oswald
Assessing NBFIs’ ability and willingness to buy bonds
As foreign investors have increased allocations to emerging and Asia ex-Japan (AXJ)
debt since early 2009, estimates of demand have tended to focus on this segment.
However, domestic non-bank financial institutions (NBFI) have not been standing still
over this period.
Robust growth of NBFIs has been a
critical component of demand in
emerging and AXJ LCY markets
We established in previous Local Markets Compendia that robust growth of NBFIs in
these markets was a critical structural component of demand – as important as (if
less volatile than) foreign funds’ rising involvement in emerging and AXJ localcurrency (LCY) markets. The need for domestic NBFIs as a growing investor base in
the emerging and AXJ LCY bond markets suddenly became critical as a major
investor group – emerging-market (EM)-dedicated funds and global bond funds –
were forced to reduce exposure to LCY markets on the back of redemptions in mid2013. To assess whether NBFIs can absorb potentially reduced demand from foreign
investors, we look at insurance and pension funds’ ability and willingness to increase
participation in LCY bond markets.
Asset growth is faster than income
growth in all NBFI segments and
over time
As we have shown previously, not only does an increase in per-capita GDP relate
strongly to an increase in NBFI assets per capita, but asset growth is faster than
income growth (Figure 1 shows per-capita NBFI assets on a log scale). Hence, rising
per-capita GDP – as we have seen across a broad swath of emerging markets – has
led to strong growth in NBFI assets.
This relationship holds true within NBFI segments, including both life insurers and the
domestically oriented mutual fund segment (mutual fund assets that are both
managed and invested in the same countries). In these segments the rate of
increase barely slows even at higher income levels, represented in Figure 4 as an
almost linear increase in log terms.
This relationship holds not just across countries at a single point in time, but also
through time. Examining the changes between end-2008 and end-2012 (Figure 2), we
find a positive linear relationship between the percentage change in NBFIs asset and
the percentage change in income; given faster EM growth, this also implies faster
NBFI asset growth in EM. This growth has indeed been impressive: life insurance
premia in EM (Figure 5) went from 9% in 2002 to 19% 10 years later; pension fund
assets in EM (Figure 6) grew from 3% of the global total to 8%.
Figure 1: Domestic institutional investor size increases
with income growth (2012)
Figure 2: Faster-growing economies have faster-growing
NBFI assets
NBFI assets per capita (log scale) vs. GDP PPP per capita
DM in green and EM in blue, 2008-12
200%
1M
NBFI assets per capita (USD)
KR
ZA
BR
10K
1K
100
SV
CN
MA
INID
EG
PK PHJO
VN
10
MY
CL
CS
NO
TW AT
KW
TT
PA
HK
US
PT
TH MX
TR
LB
RO
CH
SG
% change in NBFI assets
DK
100K
IE
BH SA
OM
BS
AE
LT
RU
TR
150%
CZ
100%
AT HK BR SG
MY
TW
NL CA ZA
PEVN
KR
IE
TH CL PH
CH MX AU
CO
LU
PL
FI GBNO DERU
US SE
DK
JP
IT PT FR
ES
HU
50%
GR
0%
UA
1
BW
0
10
20
30
40
50
GDP PPP/capita (USD '000s)
-50%
-20%
60
Source: Various sources, Standard Chartered Research
-10%
CN
IN
0%
10%
20%
30%
% change in GDP PPP/capita
Source: Various sources, Standard Chartered Research
11
ID
UG
40%
50%
Local Markets Compendium 2014
Figure 3: Life insurance has a positive and accelerated
relationship with income (2012)
Figure 4: Domestically focused mutual fund growth is
high across all income levels
Insurance density (log scale) vs. GDP PPP per capita
Domestically oriented mutual fund assets per capita (log
scale) vs. GDP PPP per capita, June 2013
100,000
CH
MT
Insurance density (USD)
KR
1K
MY
BR
LB
TH
MX
CN
TR
100
10
TW
LT
IE
SG
AE
PT
ZA
JO
INIDAO
PHLK
KEVN
EG
PK
SV
BD NG
USHK NO
Mutual fund per capita (USD)
10K
BH
OM
SA
KW
TT
UY
FR
DK CA
CH
10,000
BR
1,000
ZA
TH
TN
TR
100
PH
CN
US
NO
FI
IL
AU
SE
AT
GB
IT
TW
SA NZES KR
BE DE NL
CLHU PT
MY
MT
HK
JP
PL SK
KW
MX
GRCZ
AR
IN
SI
PKID
10
PE
RU
BH
MA EG
1
0
10
20
30
40
GDP PPP/capita (USD '000)
50
SG
1
60
BG
0
10
20
30
40
50
60
70
GDP PPP/capita (USD '000)
Source: SwissRe, IMF, Standard Chartered Research
Source: Lipper, Standard Chartered Research
Figure 5: EM life insurance premia have grown, both in
absolute terms and as a share of the world market
Figure 6: Robust pension fund growth in Asia and Latam
EM assets in USD bn, versus total EM pension assets as % of
world assets (RHS)
Annual insurance premia (LHS), % of world premia (RHS)
25
900
9
2,500
Africa
800
Asia
Europe
Latam
8
Synthetic LCY
700
20
2,000
15
1,500
10
1,000
7
6
600
EM and AXJ
premia %
world premia
(RHS)
500
400
5
EM and AXJ
% world asset
(RHS)
4
3
USD bn
300
5
2
500
200
1
100
0
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: SwissRe, Standard Chartered Research
Source: OECD, FIAP, National sources, Standard Chartered Research
Figure 7: EM pension and insurance funds have reduced
bond holdings as % of their investment portfolios
Figure 8: Bond holdings fell in 2012 versus 2008
Green: pension funds, blue: insurance funds
Bond holdings as % of investment portfolios
10 Bond holdings as % of market outstanding
(difference, 2008-2012)
ID
5
65%
60%
MX
TW
CNLK
TH
KR
55%
0
50%
-5
Pensions
45%
CN
BR
IN
Bond
holdings
have fallen
-10
40%
EG
IN
SG
KE
TH
ID
MY MX
ZA SG
LK
PK
KR
MY
-15
35%
TR
TR
ZA
Insurance
-20
30%
2003
-30
2004
2005
2006
2007
2008
2009
2010
2011
2012
-25
-20
-15
-10
-5
0
5
10
Bond holdings as % of investment (difference, 2008-2012)
Note: Weighted by estimated GBI-EM Global Diversified weights;
Source: Various sources , Standard Chartered Research
Source: Various sources, Standard Chartered Research
12
15
Local Markets Compendium 2014
Robust asset growth is a necessary
but insufficient indicator of NBFI
demand for LCY bonds; we look at
bond positioning as a key measure
of ability and real yields as a
measure of willingness
Robust asset growth is a necessary but insufficient indicator of NBFI demand for LCY
bonds. To assess the ability to buy more LCY bonds, we look at NBFIs’ bond
positioning relative to their investment portfolios and to the outstanding bond market.
NBFIs may not increase demand for bonds in line with their asset growth if their
investments in bonds are already high, either in absolute terms or relative to
historical trends. We also assess the willingness of NBFIs to buy LCY bonds by
looking at the relationship between bond holdings with real yields, as a proxy for
investment returns.
Light positioning supports ability to buy bonds
The majority of EM and AXJ funds
have lower bond holdings as a
percentage of investment portfolios
and market outstanding, compared
to end-2008
EM pension and insurance funds’ bond positioning is favourable, and these funds
have the ability to increase investment allocations to bonds. In aggregate,
government bond holdings as a percentage of investment portfolios have steadily
declined (Figure 7). The downtrend in NBFI holdings coincided with the rise of foreign
inflows to LCY bond markets between 2009 and 2012. This is expected, as the
combination of falling real yields and robust economic growth in many of these
markets should encourage investment rotation out of government bonds and into
equities and other risky assets.
There will be variations to this global trend. But we show that for countries in the J.P.
Morgan GBI-EM Global Diversified (JPM GBI-EMGD) Index that will have the
greatest exposure to foreign investment, NBFIs’ bond holdings are light versus
historical trends. We have averaged the bond holding percentages of investments
across countries by the estimated index weights.
We also compare the change in bond holdings as a percentage of investment (x-axis
in Figure 8) to the change in funds’ bond holdings as a percentage of the government
bond market size (y-axis) between 2008 and 2012. This two-dimensional measure
separates funds that have reduced bond holdings with respect to investment
portfolios (thus having a lower portfolio concentration risk) and with respect to market
size (thus posing lower investor concentration risk to the market) into the bottom
left-hand quadrant. Funds that have increased positioning with respect to their size
and the market size fall into the top right-hand quadrant. An overwhelming majority of
EM and AXJ funds are positioned to the left of the y-axis, consistent with our
previous finding, and most of them fall into the bottom left quadrant.
Figure 9: Divergent trends among pension funds
Figure 10: Low relative bond holdings in AXJ markets
Relative positioning of pension funds’ bond holding as % of
investment
Relative positioning of insurance funds’ bond holdings as % of
investment
1.5
1.0
3.0
2.5
SG
BR
KR
TH
HU
2.0
MX
PL
1.5
0.5
IN
HU
TR
MX
TH
1.0
TR
0.0
0.5
PH
MY
0.0
-0.5
TW
-0.5
-1.0
2003
2004
2005
IN
2006
TW ID
ZA
2007
2008
2009
2010
2011
-1.0
2003
2012
Note: Zero indicates neutral bond-holding level compared with the aggregate holding level in
the dataset; Countries as in SC FIRST are highlighted; Source: Standard Chartered Research
2004
2005
2006
2007
2008
2009
2010
SG
KR
MY
ID
ZA
2011 2012
Note: Zero indicates neutral bond-holding level compared with the aggregate holding level in
the dataset; Countries as in SC FIRST are highlighted; Source: Standard Chartered Research
13
Local Markets Compendium 2014
EM and AXJ funds broadly have the
ability to increase their demand for
bonds
This suggests that growth in funds’ bond investment has fallen behind growth in the
investment portfolio and in the bond market, implying that these funds have the ability
to increase their demand for bonds. With many NBFI investors also facing minimum
regulatory holdings of government bonds within their portfolios, we believe most of
the downward adjustment in NBFI bond holdings is probably over. By contrast, very
few EM and AXJ pension and insurance funds fall into the top right-hand quadrant.
Relative bond holdings compare
those in the market versus the
average of those in EM and AXJ
Not all markets are identical, however. We therefore look at bond holdings of pension
and insurance funds versus the average of all EM and AXJ funds’ bond holdings over
time (Figures 9 and 10). Such relative positioning measures are consistent with our
relative foreign investor positioning (RFIP) index, which we monitor on a monthly
basis to estimate EM-dedicated positioning across markets. The conclusions
generated by this approach are not as strong as for foreign investors, given that
pension funds and insurance companies invest only domestically and cannot rotate
between bond markets. Nevertheless, the relative positioning measures will indicate
key markets that drive global trends (Figure 7).
AXJ insurance funds have low bond
holdings relative to EM Latam and
European peers
AXJ insurance funds – including Malaysia, India, Indonesia and South Korea – have
low bond holdings relative to their EM Latam and European peers (Figure 10). These
funds have continued to reduce their relative positioning over time. However, only
India and Malaysia score low on investor and portfolio concentration risk, and we
think these NBFIs can increase demand for LCY bonds. Indonesian and South
Korean insurance funds, meanwhile, had higher investor concentration risk in 2012
than in 2008, as their bond holdings as a percentage of the markets increased during
the period.
Real yields are turning more attractive for onshore NBFIs
We expect a positive correlation
between changes in real yields and
bond holdings
We expect a positive correlation between the change in bond holdings as a
percentage of assets and the change in real yields, as a proxy for investment returns.
We therefore gauge the willingness of NBFIs to increase bond demand by looking at
trends in real yields. EM real yields (for countries in the JPM GBI-EMGD) had been
on a multi-year downtrend since their peak of 4.5% in June 2009, staying at about
1% between September 2012 and April 2013. EM NBFIs reduced their bond holdings
during the same period. The adjustment higher in nominal yields since April 2013 will
make LCY bonds more attractive for domestic NBFIs.
Figure 11: EM real yields have turned more attractive in 2013
EM NBFI bond holdings as % of investment (RHS) fell in line with EM real yields (%)
5%
49%
4%
47%
3%
45%
EM real yields
2%
43%
1%
41%
0%
39%
-1%
-2%
2006
Bond holdings % of
investment (RHS)
37%
2007
2008
2009
Source: Various sources, Bloomberg, Standard Chartered Research
14
2010
2011
2012
Local Markets Compendium 2014
The relationship will not be
straightforward, with minimum yield
requirements and regulations
affecting ability and willingness to
buy LCY bonds
The relationship will not be straightforward, however. The level of yields rather than
the change in yields is a key determinant of bond demand. Many pension funds,
especially those with defined-benefit plans, have minimum investment return targets.
They will be compelled to diversify asset holdings into higher-yielding assets if yields
fall below certain thresholds. This may mean that demand will only pick up when
yields rise above the thresholds. The insurance industry is also heavily regulated, as
many markets have moved to adopt the Risk-Based Capital (RBC) framework.
Industry regulations will affect the willingness (and ability) to invest in LCY bonds.
Identifying markets with the ability and willingness to buy LCY bonds
Pension and insurance funds’ bond holdings have broadly fallen across EM and AXJ
since end-2008. While we see this light positioning as positive for the bond market,
the willingness of these funds to increase their bond holdings is less obvious and
depends on various drivers, aside from real yields, that may not always be
measurable across markets. However, the measures of ability and willingness we
have outlined in this report can help to identify markets with extreme positioning and
levels that indicate their vulnerability or strength.
Malaysia, India, Brazil, Chile and South Africa stand out as markets that have both
favourably light positioning of NBFI bonds holdings and attractive real yields to
encourage demand for bonds. In Figure 12, we compare the measure of NBFIs’
ability to buy LCY bonds to the measure of willingness. In the event that demand
from other investor groups, including global funds and EM-dedicated funds, weakens
and nominal yields rise, we identify the ability and willingness of NBFIs to increase
their demand for LCY bonds.
In contrast, Singapore and Turkey look vulnerable, with already-heavy positioning of
NBFIs and low real yields. Indonesia’s NBFI positioning is still relatively light, but real
yields are low at just 0.11% in September 2013 (we have used the benchmark real
yield from the iBoxx GEMX sub-index). In case of a market sell-off, we can expect
limited support from the NBFIs at current levels.
Figure 12: Malaysia, India, Brazil, Chile and South Africa have the ability to
increase demand for LCY bonds as real yields turn attractive
7%
LK
6%
Real yields (Aug-2013)
Malaysia, India, Brazil, Chile and
South Africa have favourably light
positioning of NBFIs and attractive
real yields; Singapore, Turkey and
Indonesia look vulnerable
5%
NG
BR
KE
4%
NZ
3%
TWTH
2%
PL
PE
KR
MX
MY
ZA
AU
1%
CO
HU
IN
CL
ID
0%
CZ
SG
TR
JP
-1%
PK
-2%
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
200%
Sum of bond holdings as % of investment portfolio and holdings as % of market size
(Dec-2012)
Source: Various sources, Standard Chartered Research
15
Local Markets Compendium 2014
The rise of the CNY
Callum Henderson | Thomas Harr
EM currencies are increasingly prominent in the BIS survey
The rise of EM currencies is the key takeaway from the BIS 2013 Triennial Central
Bank Survey preliminary results. The top 20 FX markets in 2013 still include 10 EM
currencies, as in 2010, but two of them (MXN and CNY) are now in the top 10,
versus only one (HKD) before. Within the top 20, EM currencies represented roughly
7.4% of total turnover, up from about 5.8% in 2010 and 5.1% in 2007. At a more
granular level, we highlight the following results:
CNY and MXN are the big winners
x
The biggest EM gainers were the MXN and CNY, which jumped from 14th and
17th places, respectively, in 2010, to 8th and 9th in the 2013 survey.
x
Looking further back, the CNY was 35 in 2001, 29 in 2004 and 20 in 2007.
x
Other EM winners include the RUB, TRY and ZAR, which improved to 12 , 16
and 18th places, respectively, from 16th, 19th and 20th.
x
By contrast, some EM currencies’ shares declined in 2013 relative to 2010: the
HKD (to 13th from 8th), KRW (to 17th from 11th) and INR (to 20th from 15th).
x
The results suggest that the internationalisation of the CNY (in the form of the
‘CNH’) has occurred at the expense of the HKD.
x
Apart from the CNY, all Asia ex-Japan (AXJ) currencies in the top 20 had the
same or lower rankings in 2013 relative to 2010. This supports the view that AXJ
currencies need to become more internationalised in order not to lose ground to
the CNY.
th
th
th
th
Figure 1: The rise of the CNY; the fall of other AXJ currencies
Percentage shares of average daily turnover in April 2013*
EM currencies are in bold
2007
2010
2013
1
USD (85.6% share)
USD (84.9%)
USD (87.0%)
2
EUR (37.0%)
EUR (39.1%)
EUR (33.4%)
3
JPY (17.2%)
JPY (19.0%)
JPY (23.0%)
4
GBP (14.9%)
GBP (12.9%)
GBP (11.8%)
5
CHF (6.8%)
AUD (7.6%)
AUD (8.6%)
6
AUD (6.6%)
CHF (6.3%)
CHF (5.2%)
7
CAD (4.3%)
CAD (5.3%)
CAD (4.6%)
8
HKD (2.7%)
HKD (2.4%)
MXN (2.5%)
9
SEK (2.7%)
SEK (2.2%)
CNY (2.2%)
10
NOK (2.1%)
NZD (1.6%)
NZD (2.0%)
11
NZD (1.9%)
KRW (1.5%)
SEK (1.8%)
12
MXN (1.3%)
SGD (1.4%)
RUB (1.6%)
13
SGD (1.3%)
NOK (1.3%)
HKD (1.4%)
14
KRW (1.2%)
MXN (1.3%)
NOK (1.4%)
15
ZAR (0.9%)
INR (1.0%)
SGD (1.4%)
16
DKK (0.8%)
RUB (0.9%)
TRY (1.3%)
17
PLN (0.8%)
CNY (0.9%)
KRW (1.2%)
18
RUB (0.7%)
PLN (0.8%)
ZAR (1.1%)
19
INR (0.7%)
TRY (0.7%)
BRL (1.1%)
20
CNY (0.5%)
ZAR (0.7%)
INR (1.0%)
*Because two currencies are involved in each transaction, the sum of the percentage shares of individual currencies totals 200% instead of 100%.
Source: Bank for International Settlements, Triennial Central Bank Survey, preliminary results, September 2013
16
th
Local Markets Compendium 2014
The potential is still large; CNY is making waves
2013 average daily FX turnover relative to total trade and GDP suggests that
enormous growth potential remains. The relationship between FX turnover on the
one hand and GDP and trade on the other is clear and positive. However, this
relationship is not proportional across countries and is influenced by other variables.
Non-G10 currencies generally have lower average daily turnover relative to total
trade and GDP than G10 currencies (see Figures 2 and 3). We highlight two key
points in this regard.
First, most FX trading is likely driven by cross-border financial flows rather than
output or trade dynamics. The 2013 survey results confirm this. Within average daily
FX turnover of USD 5.345tn, ‘non-financial customers’ – corporates – make up only
9.2% of spot transactions, 6.4% of FX swaps and 14.2% of outright forwards. By
comparison, the shares of ‘other financial institutions’ – investors and smaller, nonreporting banks – are 57.8%, 44.9% and 59.1% respectively.
Convertibility is an important driver
of FX turnover
Second, convertibility is clearly an important driver of daily FX turnover. With the
exceptions of the CNY and RUB, the EM winners – including the MXN, TRY and ZAR
– are convertible currencies. In contrast, EM losers such as the KRW and INR are
only partially convertible and non-deliverable. The MXN, TRY and ZAR have large
and open capital markets in common. In addition, Mexico, Turkey and South Africa
are part of large EM bond indices such as the J.P Morgan Emerging Markets Global
Diversified (GBI-EMGD) Index, in contrast to Korea and India. The four top 20
currencies with the lowest daily average FX turnover to total trade, and the six with
the lowest daily average FX turnover to GDP, are all not fully convertible.
The top 10 most actively traded currencies include the AUD, CHF and CAD. There
are several reasons for this, in our view. To start with, there are only 15 fully
deliverable and convertible currencies, limiting investor choice and focus. In addition,
the G5 currencies (USD, EUR, JPY, GBP and CHF) have traditionally taken the lion’s
share of central bank reserve allocations, with the 10 others providing diversification.
There is also evidence of higher trading volumes in higher-yielding currencies,
reflecting the apparent failure of interest rate parity and the prevalence of forwardrate bias models. Crucially, G10 currencies tend to have deeper, more liquid and
more sophisticated markets, attracting many kinds of private- and public-sector
investors. Finally, G10 currencies that have active exchange-traded futures markets
tend to be the most actively traded by trading models.
Figure 2: Non-G10 currencies have room to catch up
Figure 3: The CNY has the biggest potential
Ratio of average daily FX turnover to total trade
Ratio of average daily FX turnover to GDP
1.4
0.7
1.2
0.6
1.0
0.5
0.8
G10
0.4
0.6
0.3
0.4
0.2
G10
Non-G10
Non-G10
0.2
0.1
0.0
NZD
CHF
AUD
USD
GBP
JPY
SEK
NOK
EUR
CAD
HKD
SGD
HUF
ZAR
DKK
MXN
TRY
PLN
KRW
TWD
RUB
INR
BRL
CNY
NZD
USD
AUD
JPY
CHF
GBP
NOK
SEK
CAD
EUR
ZAR
DKK
TRY
MXN
BRL
HUF
RUB
PLN
SGD
HKD
INR
KRW
TWD
CNY
0.0
Source: BIS, World Bank, Standard Chartered Research
Source: BIS, World Bank, Standard Chartered Research
17
Local Markets Compendium 2014
The internationalisation of the CNY
may encourage other AXJ countries
to internationalise their currencies
Convertibility is a critical driver of the CNY’s rise; this supports our assumptions on
CNY trading volumes until 2020. We expect China’s capital account to be basically
open by then. While some prudential controls are likely to remain in place, the
opening of the capital account, and the potential for CNY use as an investment tool,
suggests enormous further upside potential despite significant gains to date. CNY
daily average FX turnover is only around 3.1% of China’s trade and 1.4% of its GDP.
These figures compare with 89.3% and 30.4% for the AUD, and 7.4% and 29.2% for
the HKD. As China’s capital account opens, two things will happen: (1) proxy trades
for CNY appreciation, such as being long the SGD or the MYR, will diminish in favour
of the CNY itself; and (2) the CNY will dominate Asian FX trading, encouraging other
AXJ countries to internationalise their currencies to maintain regional relevance.
The Renminbi Globalisation Index (RGI)
We have developed a proprietary index to measure the internationalisation of the
CNY. The Standard Chartered Renminbi Globalisation Index (RGI) tracks the
development of the offshore Renminbi market (see On the Ground, 9 September
2013, ‘Offshore Renminbi – Taiwan joins the RGI’). It tracks developments in four
areas: (1) offshore Renminbi deposits, (2) Renminbi cross-border trade settlement
and other international payments, (3) CNH FX turnover volume, and (4) Dim Sum
bond issuance. It currently covers four offshore Renminbi markets: Hong Kong (since
end-2010), Singapore, London (both included since August 2011), and Taiwan
(included Since July 2013).
As of end-July, the RGI index was at a record high of 1,112, up 50% year-to-date,
supported by growth in CNH trading volume (up 114%), rising trade settlement and
other international payments (up 98%), and Taiwan’s inclusion in the index
(Figure 4). Offshore Renminbi deposits were up 29% and the Dim Sum bond market
had grown 35% year-to-date.
Average monthly CNH FX turnover – including spot, swaps and CNY NDFs – grew to
USD 435bn in Q2-2013, a c.80% increase from Q4-2012, based on our estimates
(Figure 5). CNH FX swap turnover has more than doubled in the past year to around
c.USD 200bn per month. In contrast, average monthly turnover of CNY NDFs shrank
further to USD 60-70bn in Q2-2013 from about USD 80bn as of Q4-2012 as they are
gradually replaced by deliverable CNH products.
Figure 4: The RGI grew 50% in the first 7 months of 2013
Figure 5: The rise of CNH; the fall of CNY NDF
Index currently includes HK, Singapore, London and Taiwan
Average CNH daily turnover rose to c.USD 18bn (USD bn)
1,200
12
Index as of July 2013 = 1,112
CNH swap
10
800
8
HK + SG + LDN+TW
1,000
600
400
HK + SG + LDN
200
CNH spot
6
4
CNY NDF
2
HK
0
Dec-10
Jun-11
Dec-11
Jun-12
Dec-12
0
Jul-10
Jun-13
Source: Standard Chartered Research
Jan-11
Jul-11
Source: Standard Chartered Research
18
Jan-12
Jul-12
Jan-13
Jul-13
Asia
Local Markets Compendium 2014
Bangladesh
Nagaraj Kulkarni | Samantha Amerasinghe | Samiran Chakraborty
Asia
General
Monetary policy framework
Monetary policy tools
Name
Policy target
Reserve requirements
x Cash reserve ratio: The proportion of total demand and time
liabilities (excluding interbank deposits) that a scheduled
bank has to maintain in cash with the BB; current weekly
average of 5.5% (minimum 4.75%).
x Statutory liquidity requirement: The minimum that a
scheduled bank has to maintain in liquid assets; includes
cash in till, balances with the country’s leading state-owned
commercial bank , BDT and foreign-currency balances with
the BB. Currently 13%.
Bangladesh Bank (BB)
Average CPI inflation of 7.0% y/y in
FY14
Independence
High, under BB Order, 1972
(P.O. No. 127 of 1972)
Policy rate
1-day repo and reverse repo rates
Bloomberg ticker
NA
Deciding body
Monetary Policy Committee
Policy decision-making Monetary Policy Committee
Decision meeting
Half-yearly
frequency
Announcement time
NA
Press conference
Usually around midday
Minutes published
Occasionally releases summary
Open-market
To manage liquidity
operations (OMOs)
Quarterly inflation
4th week of Jan, Jul
report
OMOs
Aimed at keeping the extent of liquidity tightness consistent
with announced monetary policy. To drain liquidity, the BB
30-day bill is usually used. To inject liquidity, the reverse repo
and Primary Dealer (PD) special repo are used.
Standing facilities
Banks and PDs can borrow funds from BB via the liquidity
support facility. PDs can also borrow via the special repo
facility, where the cost of borrowing is 50bps higher than the
repo rate. Also, for PDs, BB will supply liquidity for the amount
equivalent to the devolvement of government securities in
primary auctions in the previous month.
Source: Bangladesh Bank, Standard Chartered Research
Source: Bangladesh Bank, Standard Chartered Research
Exchange rate framework
Exchange rate regime
Other managed arrangement (IMF)
Exchange rate target
No target, but BB intervenes actively to mitigate BDT volatility
Intervention instruments
Verbal intervention and through spot USD-BDT
Convertible?
Partially
Deliverable?
No
Fixing time and place
Spot date, fixing
NA
Fixing methodology
NA
T+2, but most deals are based on today’s value
Source: IMF, Bangladesh Bank, Standard Chartered Research
Economic and financial indicators^
Government balances (% of GDP)
2011
2012
2013F
2014F
Real GDP, change
6.7
6.1
6.3
6.5
CPI inflation*
8.8
10.6
7.7
7.5
Current account/GDP
0.9
1.5
3
2.5
FX res./imports**
3.7
3.19
4.65
4.65
Fiscal balance/GDP
-4.49
-3.38
-4.8
-4.8
Primary balance/GDP
NA
NA
NA
NA
Gen. govt. debt/GDP
37.4
37.2
37.1
37.0
External debt/GDP
19.7
19.7
19.6
19.6
1-day repo***
7.75
7.75
7.25
6.75
S&P
BB-
BB-
Moody’s
Ba3
Ba3
NA
NA
Country
rating
Fitch
0
60
-1
50
-2
40
-3
30
-4
20
Fiscal balance
-5
-6
General govt.
debt (RHS)
-7
0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013F 2014F
^Fiscal year starts in July; *yearly average; **months of imports; ***year-end;
Source: IMF, IIF, MoF, Standard Chartered Research
Source: Bangladesh Bank, Standard Chartered Research
20
10
Local Markets Compendium 2014
Bangladesh
FX
Exchange rate products
Spot
Availability
Daily trading volume
(USD mn)
Average trade size
(USD mn)
Bid/ask spread in BDT
onshore*
Bid/ask spread in BDT
offshore*
Reuters ticker
Outright forwards
Yes
21
3
0.5
2
NDFs
Options
FX swaps
On a case-by-case basis
NA
NA
Quotes are usually one-sided
Asia
NA
*Versus USD; for FX swaps, bid/ask spread refers to swap points vs. USD; Source: Standard Chartered Research
Exchange rate regulation – Non-residents
Underlying asset – Trade and FDI
Underlying asset – Financial asset
No underlying asset
Spot
BB approval required
for selling BDT
No restrictions
Not allowed
Forwards
NDFs
Not allowed
NA
Options
FX swaps
Not allowed
For more details, see the BB website at www.bangladesh-bank.org/ including the following links:
http://www.bangladesh-bank.org/aboutus/regulationguideline/foreignexchange/fegv1cont.php
Exchange rate regulation – Residents
x
x
x
x
Interbank participants can freely buy and sell spot and forwards, provided they remain within the NOP limit prescribed by BB.
Interbank participants are not allowed to quote out of market rates.
A resident corporation can access both spot and forward markets, provided there is a genuine underlying transaction.
All forward contracts are treated as firm and closed out on expiry.
Source: Bangladesh Bank, Standard Chartered Research
Market participants
Corporates
Real-money
funds
Hedge funds
Interbank
70% x Both exporters and importers tend to hedge when the trend is against them.
x Overall hedging activity is low.
0% x NA
0% x NA
30% x Most interbank transactions are need-based, and few dealers engage in speculative trading.
x Deals are mostly concentrated at the front end of the forward curve, i.e., 3-6M.
Source: Standard Chartered Research
USD-BDT and BDT REER – Stabilising
The BoP surplus is reviving (USD mn per quarter)
3,000
110
100
2,000
REER
90
C/A
80
FDI
Portfolio
Other
BoP
1,000
USD-BDT
70
0
60
50
-1,000
40
30
1994
-2,000
1996
1998
2000
2002
2004
2006
2008
2010
Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13
2012
Source: Bangladesh Bank
Source: Bangladesh Bank
21
Local Markets Compendium 2014
Bangladesh
Rates
Bonds
BGTBs
Asia
Issuer
Use of proceeds
Curve span
Common tenors
Coupon
Coupon frequency
Day count
T-bills
Government of Bangladesh
Fiscal financing
5Y-20Y
5Y,10Y,15Y,20Y
Fixed
Semi-annual
Act/365
Primary market
Auction day
Auction cut-off
Auction results
Auction style
Average issue size
3M, 6M, 1Y
Zero
NA
Act/364
Tuesday
Sunday
11:00
15:00
Multiple-price
BDT 1.5-5.0bn
Secondary market
Average trade size
Daily trading volume
Quotation convention
Settlement period
Bid/offer spread
BDT 2.5-7.0bn
BDT 100-150mn
BDT 200-250mn
Yield
T+0; primary auction is T+1
50bps
Regulations
Custodian
Local custodian
Source: Bangladesh Bank, Standard Chartered Research
Fiscal deficit financing pattern (BDT bn)
Fiscal deficit financing pattern (%)
300
80
70
60
50
40
30
20
10
0
-10
-20
2006
250
Domestic bank
200
150
Foreign
100
Domestic
non-bank
50
0
-50
2006
2007
2008
2009
2010
2011
2012
2013
Domestic bank
Foreign
Domestic
non-bank
2007
2008
2009
Source: Bangladesh Bank, MoF
Source: Bangladesh Bank, MoF
Government borrowing from banking system (BDT bn)
Outstanding stock (BDT bn)
Borrowing
from banking
system
250
200
900
800
700
600
500
400
300
200
100
0
2008
150
100
50
0
Borrowing
from central
bank
-50
-100
-150
2006
2007
2008
2009
2010
2011
2012
2013
Source: Bangladesh Bank, MoF
2011
2012
2013
BGTBs
NSD
certificates
T-Bills
2009
Source: Bangladesh Bank, MoF
22
2010
2010
2011
2012
Local Markets Compendium 2014
Bangladesh
Rates
Market participants
Commercial banks
x There are 52 scheduled commercial banks, including 4 state-owned commercial banks, 30 private commercial banks,
9 foreign-owned commercial banks, and 4 government-owned specialised banks.
x Commercial banks are the largest investors in Bangladesh Government Treasury Bonds (BGTBs).
x Scheduled commercial banks have to maintain 13% of their net demand and time liabilities in government securities.
x As at end-June 2013, banks held c. 20% of their deposits in government securities and T-bills.
x Banks prefer to invest in T-bills and BGTBs with maturities up to 5Y.
x Regulated by BB (http://www.bangladesh-bank.org)
Foreign investors
x The participation of foreign investors is not significant although inflows into debt have picked-up recently.
x Non-resident individuals and institutions are eligible to purchase BGTBs, provided they are purchased with funds from a nonresident foreign-currency account with a bank in Bangladesh in the name of the purchaser.
x Non-residents cannot resell BGTBs to a resident in Bangladesh within one year of purchase. However, resale to other nonresidents (subject to the above conditions) is permitted.
x Coupon payments and resale/redemption proceeds are transferrable abroad in foreign exchange.
Others
x Primary Dealers underwrite primary issuance of BGTBs and facilitate secondary-market trading by making markets.
x The role of pension and mutual funds in the government securities market is still limited.
Source: Bangladesh Bank, JBC, IRDA, Standard Chartered Research
Ownership by participant – Banks dominate (BDT bn)
Ownership by participant – Banks dominate (%)
100
Deposit money
banks
600
500
Deposit money
banks
80
400
60
300
40
200
Others
100
0
2007
2008
2009
2010
Bangladesh
Bank
2011
Others
20
0
2007
2012
2008
2009
2010
Bangladesh
Bank
2011
2012
Source: Bangladesh Bank, Standard Chartered Research
Source: Bangladesh Bank, Standard Chartered Research
Yield curve over time – Moving higher (%)
Commercial banks – Improving domestic asset growth
14
6,000
2013
12
5,000
End 2012
10
Assets
(BDT bn)
End 2010
2
3,000
1
6
2,000
End 2009
4
0
2009
0
O/N 1Y
5Y
10Y
15Y
20Y
23
-1
-2
2010
2011
Source: Bloomberg, Standard Chartered Research
Source: Reuters, Bangladesh Bank, Standard Chartered Research
0
m/m growth
(%, RHS)
1,000
2
4
3
4,000
End 2011
8
5
2012
2013
Asia
Insurance companies
x The life insurance segment is the largest buyer of government securities, mainly investing in government securities and
national investment bonds.
x Life insurance companies are mandated to hold 30% of their assets in T-bills, T-bonds, and national investment bonds.
x Of the 62 insurance companies, state-owned Jiban Bima Corporation (JBC) and Sadharan Bima Corporation are the largest
in the life and non-life segment, respectively.
x As of 2011, total assets of life and non-life businesses were BDT 203bn and BDT 55.4bn respectively
x Insurers prefer to invest in BGTBs with maturities of 5-20Y.
x Regulated by Insurance Regulatory and Development Authority (www.idra.org.bd)
Local Markets Compendium 2014
China
Becky Liu | Li Wei | Robert Minikin | Eddie Cheung | Stephen Green | Lan Shen
Asia
General
Monetary policy framework
Monetary policy tools
Name
Policy target
People’s Bank of China (PBoC)
NA, but GDP growth above 7.5% in
2013 and CPI below 4% y/y are key
levels
Independence
Low; controlled by the State Council
(SC)
Policy rate
1Y PBoC lending and deposit rates
Bloomberg ticker
CHLR12M and CNDR1Y
Deciding body
PBoC Monetary Policy Committee,
controlled by the SC
Policy decision-making SC, signed off by the Premier
Decision meeting
Quarterly, but decisions can be made
frequency
at any time
Announcement time
NA, as decisions taken at any time
Press conference
NA
Minutes published
Brief minutes from quarterly meeting
Open-market
Repos and reverse repos are used to
operations (OMOs)
manage interbank liquidity; sales of
PBoC bills to be gradually phased out
Quarterly inflation
Quarterly monetary policy
report
implementation report
OMOs
x OMOs include repos and reverse repos conducted on
Tuesday and Thursday to manage interbank liquidity.
x PBoC resumed bill issuance as an OMO tool in May 2013.
x Central treasury cash management, a system via which the
PBoC injects term fiscal deposits into the market at a bid rate.
Source: PBoC, Standard Chartered Research
Source: PBoC, Standard Chartered Research
Administrative tools
Banks can offer up to a 10% premium on deposit rates. The
lending rate floor was removed in July 2013. The PBoC may
also set a loan quota via window guidance.
Standing facilities
Rarely used, but these facilities include lending windows, a
rediscount facility and FX swap facilities.
Reserve requirement
Reserve requirement ratio (RRR) is currently at 20% for large
banks, 18% for smaller banks. Additional ‘differentiated’ RRRs
can be applied.
Central treasury cash management
PBoC can inject term fiscal deposits into the market at a bid rate.
Exchange rate framework
Exchange rate regime
Exchange rate target
Intervention instruments
Convertible?
Deliverable?
Fixing time and place
Spot date, fixing
Fixing methodology
Crawl-like arrangement (IMF)
Gradual appreciation in the medium term to reduce trade surplus and to prompt rebalancing of
economic growth
Buys/sells CNY in the spot market through the China Foreign Exchange Trade System (CFETS)
to manage its daily movements; daily trading band of +/-1% around fix
Partially
No
09:15, Beijing
Spot date T+2, fixing is 2 days prior to settlement
PBoC fixing is based in part on input from market makers
Source: PBoC, SAFE, Standard Chartered Research
Economic and financial indicators
Government balances (% of GDP)
2011
2012
2013F
2014F
Real GDP, change
9.2
7.8
7.5
7.2
CPI inflation*
5.4
2.6
2.5
3
Current account/GDP
2.8
2.6
3.3
3.7
FX res./imports**
22.0
19.0
16.0
14.0
Fiscal balance/GDP
-1.1
-1.3
-2.5
-2.5
Primary balance/GDP
-1.0
-1.4
-1.6
-1.6
Gen. govt. debt/GDP***
15.3
14.9
15.0
16.0
9.5
10.6
11.9
13.0
6.00
6.00
External debt/GDP
Policy rate****
Country
rating
6.56
6.00
S&P
AA-
AA-
Moody’s
Aa3
Aa3
A+
A+
Fitch
0.5
25
0.0
20
-0.5
15
-1.0
-1.5
-2.0
Fiscal balance
10
General govt.
debt (RHS)
5
-2.5
-3.0
0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013F 2014F
*Yearly average; **months of imports; ***only includes official MoF-issued debt; ****year-end;
Source: NBS, CEIC, Standard Chartered Research
Source: NBS, MoF, CEIC, Standard Chartered Research
24
Local Markets Compendium 2014
China
FX
Exchange rate products
Availability
Daily trading volume
(USD mn)
Average trade size
(USD mn)
Bid/ask spread in CNY
onshore*
Spot
Outright forwards
NDFs
Yes
Options
FX swaps
34,000
28,000
4,000
17,000
41,000
10
0.0007
30
Included in ‘FX swaps’ due
to convergence of onshore
forwards and swap curve
1M 0.001, 3M 0.002,
6M, 0.002, 12M 0.003
See CNH
SCSHFX
0.3
See CNH
OTC
SCSHFX
Asia
Bid/ask spread in CNY
offshore*
Reuters ticker
1M 0.0005, 3M 0.001,
6M 0.0015, 12M 0.002
NA
*Versus USD; for FX swaps, bid/ask spread refers to swap points vs. USD; Source: BIS, Triennial Central Bank Survey, September 2013, CFETC, Standard Chartered Research
Exchange rate regulation – Non-residents
Underlying asset – Trade and FDI
Underlying asset – Financial asset
No underlying asset
Spot
Forwards
NDFs
Requires SAFE approval and trade documentation
Subject to QFII quota and interbank
No
bond-market quota
Not allowed restrictions
Not allowed
Options
FX swaps
NA
Not
allowed
For more details, see the links below to the websites of the PBoC and State Administration of Foreign Exchange (SAFE) PBoC Decree [2008] no. 532, PBoC Release [2010] No. 217, SAFE
Decree [2009] No. 1, CSRC Decree [2006] no.36
http://www.safe.gov.cn/model_safe/laws/law_detail.jsp?ID=80100000000000000,68&id=4
Also refer to www.safe.gov.cn, www.pboc.gov.cn, www.csrc.gov.cn
Exchange rate regulation – Residents
x Foreign investment enterprises and corporates must go through authorised financial institutions to undertake FX transactions.
Hedging in onshore forwards is allowed, subject to documentation and provided the transactions are approved by SAFE.
x Onshore USD-CNY options trading permitted since 1 April 2011; currently restricted to firms and banks for hedging purposes.
For more information on options regulations see http://www.safe.gov.cn/model_safe/laws/law_detail.jsp?ID=80600000000000000,32&id=4
Market participants
Corporates
Real-money
funds
Hedge funds
Interbank
22% x Importers typically buy USD-CNY given easing expectations of CNY appreciation.
x Exporters typically sell USD-CNY in the context of overseas FX receivables.
3% x Only QFIIs can access the onshore CNY FX market via custodian banks, but they are not allowed to
run proprietary trading accounts.
x CBs and SWFs have limited access to the onshore bond and equity markets, while onshore CNY
needs are mainly met by official sources.
3% x Hedge funds do not participate in the onshore market.
x They access offshore NDF markets to take directional positions on CNY vs. USD; level of trading
activity is volatile.
72% x Interbank flows constitute the largest share of the CNY onshore FX market.
Source: Standard Chartered Research
CNY REER and NEER – CNY appreciation is not over
The BoP surplus is moderating (USD mn per quarter)
C/A
400,000
200
REER
180
FDI
Portfolio
300,000
Other
BoP
200,000
160
100,000
140
NEER
0
120
-100,000
100
80
1994
-200,000
-300,000
1997
2000
2003
2006
2009
2012
2001
Source: BIS, Standard Chartered Research
2003
2005
Source: SAFE, Standard Chartered Research
25
2007
2009
2011
2013
Local Markets Compendium 2014
China
Rates
Bonds
PBoC bills
People’s Bank of China
Government bills
Government bonds
Ministry of Finance
Use of proceeds
Liquidity management
Fiscal funding
Curve span
Common tenors
3M to 3Y
3M, 6M, 1Y
Issuer
Coupon
91 to 273 days
91D, 182D, 273D
3M-50Y
1Y, 3Y, 5Y, 7Y, 10Y
Fixed
Zero coupon/Fixed
Zero coupon
Asia
Coupon frequency
Zero coupon/Annual
Day count
Primary market
Auction day
Auction cut-off
Annual, semi-annual
Policy bank bonds
Ex-Im bank, ADB, CDB
Infrastructure,
development
3M-50Y
1Y, 3Y, 5Y, 7Y, 10Y
Zerocoupon/fixed/floating
Zerocoupon/quarterly/semiannual/annual
Act/Act
Tuesday/Thursday
Friday
Wednesday
10:00
Auction results
Auction style
Average issue size
Secondary market
Average trade size
Daily trading volume
10:30
Variable
Usually 11:30 or 14:30
Immediately after
auction
Single/multiple/hybrid
CNY 20-30bn
CNY 15-30bn
Single-price
CNY 2-50bn
Single/hybrid
CNY 10-20bn
CNY 1-5bn
CNY 10-100mn
CNY 10-20bn
CNY 20-30bn
Quotation convention
Yield (2 decimals)
Settlement period
Bid/offer spread
Regulations
Custodian
CNY 20-30bn
Yield for fixed, spread
for floating
T+0/T+1
5-30bps
1-10bps
CDC/local custodian
Source: Chinabond, PBoC, Standard Chartered Research
Fast growth in China’s onshore bond market
9
8
7
6
5
4
3
2
1
0
2001
Quarterly trading turnover ratio – Stagnated in recent years
1.6
1.2
1.4
1.0
1.2
CNY tn (LHS)
1.0
0.8
0.8
0.6
0.6
USD tn (RHS)
0.4
0.4
2003
2005
2007
2009
2011
0.2
0.2
0.0
0.0
2001
2013
2003
2005
2007
Source: Chinabond, PBoC, Standard Chartered Research
Source: ADB, Standard Chartered Research
Swaps
Floating-rate reference calculation
Main product
Average daily market size
Average ticket size
Average bid/offer spread
Term
Liquid up to
Settlement
Coupon frequency
Convention
Floating-rate reference
Floating-rate ticker
Ticker (2Y)
Non-deliverable interest rate
swaps
CNY 1.5-2bn
CNY 10-100mn
1-5bps
1-10Y
5Y
T+0/T+1 (usually T+1)
Quarterly
Act/365
7D repo/3M SHIBOR
CNRR007/SHIF3M
(Bloomberg)
CCSWNI2/CCSH2
(Bloomberg)
2009
2011
2013
Repo: Calculated based on trading rates between 09:00-11:00
each trading day. The median of all trading rates during the
period is taken to be the fixing rate for that day. The fixing
repo rate is then released to the public at 11:00 each trading
day.
SHIBOR: calculated as prime banks’ arithmetic average of the
uncollateralised offered rates in the Shanghai interbank
market. Banks submit SHIBOR rates before 11:20, and
SHIBOR fixing is released daily at 11:30.
Source: Standard Chartered Research
Source: CFETS, Standard Chartered Research
26
Local Markets Compendium 2014
China
Rates
Account opening
Trade and settlement flowchart
China interbank bond market
1.Place Order
3. Order Execution
Bank/broker
5. Trade
Confirmation
• Order Booking
• Order
Confirmation
• Settlement /cash
Instruction
• Settlement/cash
Confirmation
• Reconciliation
TD
Securities &
Cash
Settlement
Interbank
investors
2. funding/
holding check
7. Settlement/
cash
Instruction
10. Settlement
Confirmation
5. Trade
Confirmation
Bank/broker
12. Cash/Holding
Statement EOD
CFETS
4. Confirmation
6. Executed Data
8. Recon Ins vs. CCDC record
DVP
DAP
PAD
FOP
CCDC
9. Settle with
CCDC for both
securities & cash
11. Cash/Stock Reconciliation
China exchange market
1. Place Order
3. Order Execution
TD
Securities
Settlement
• Order
Booking
• Order
Confirmation
• Settlement
Instruction
• Affirmation
• Settlement
Confirmation
Broker
2. Funding/
holding check
TD+1
Cash
Settlement
5. Trade Confirmation
6. Executed Data
8. Depositories’ data –
Update holding by TD
DEPOSITORIES
7. Settlement
Instruction
Interbank
investors
• Cash
Clearing with
CSDCC
• Cash
Clearing with
RQFII
account
• Cash
Statement
EXCHANGES
4. Confirmation
5. Trade Confirmation
9. Settlement
Confirmation
11. Holding
Statement
MT535/536
EOD TD
10. Stock
Reconciliation
Bank/
custodian
12. Payment to/from
Depository on TD+1
Cash entry to RQFII
account
13. Cash
Reconciliation
CLEARING
BANK OF
DEPOSITORY
14. Cash Statement
MT940/950 EOD TD+1
Source: Standard Chartered Research
Regulations and taxation
Tax types
Foreign investment regulations Restricted
Income tax for non-residents
Capital gains tax
Additional notes
Foreign investors can access China’s domestic bond market via
three different schemes: (1) PBoC interbank programme, (2) QFII,
(3) R-QFII. Regulatory approval is required under all programmes,
and investment amount is limited by quota approved.
Tax exemption possible 10% or lower subject to DTA
under DTA
Not exempted but not
5%
formally implemented
Source: SAT, Standard Chartered Research
27
Asia
Cash account
Depository account
Trading account
Process duration
Local custodian
Local custodian
Yes
Up to 6 months
Special requirements
Foreign investors can access China’s domestic bond markets (interbank and/or stock exchange) under three different
programmes. The process is heavily regulated; regulators typically involved include the People’s Bank of China (PBoC), China
Securities Regulatory Commission (CSRC) and State Administration of Foreign Exchange (SAFE) for investment licences and
quota approvals. The three programmes are:
x The PBoC’s interbank bond programme allows four types of institutions (foreign central banks, Renminbi settlement banks,
Renminbi clearing banks and insurance companies) to invest in the interbank bond market within quotas approved by the PBoC.
x The Qualified Foreign Institutional Investors (QFII) programme is available to investors that meet minimum requirements
(AUM, years of operation, etc.) outlined by the CSRC. The programme requires licence approval by the CSRC followed by
quota approval by SAFE. Additional PBoC approval is needed if the investors require access to the interbank bond market in
addition to securities traded on Shanghai/Shenzhen stock exchanges.
x The Renminbi Qualified Foreign Institutional Investor (R-QFII) programme, for which only Hong Kong-based financial
institutions (SFC type 9 licence holder and meeting other minimum requirements) are currently eligible. Application requires
PBoC/CSRC/SAFE approval. Local authorities have indicated an expansion of the programme from Hong Kong to other
offshore Renminbi centres, including Taiwan, Singapore and London.
Local Markets Compendium 2014
China
Rates
Asia
Market participants
Banks
x Commercial banks are by far the biggest holders of onshore bonds. They have held around 70% of total government bonds in
recent years. A key reason for banks to hold CGBs is the zero-risk weighting stats. Banks’ investment and trading books
typically invest out to 10Y; average duration for trading book is typically short (1-3Y).
x Only cash (not bonds) can be used for reserve requirement purposes.
x Regulated by China Banking Regulatory Commission (www.cbrc.gov.cn)
Securities companies
x Securities companies are important underwriters of domestic credit bonds, mainly corporate bonds and enterprise bonds. In
2012, 69 securities companies underwrote a total CNY 1.47tn of bonds, led by CITIC Securities and CICC.
x They are relatively small investors in domestic bonds. Their investments are more skewed towards domestic credits, which
are higher-yielding than rates products. Hold around 3-4% of outstanding MTNs and enterprise bonds, and less than 0.1% of
outstanding CGBs and policy bank bonds.
Mutual funds
x As of 22 July 2013, there were 1,782 funds in China, including 1,702 domestic funds and 80 QDII funds, according to China
Galaxy Securities’ H1-2013 funds research.
x Most funds are open-ended funds (94%). By investment nature, equity funds have the biggest share (38% of the total, 672
funds), followed by bond funds (36%, 644), balanced funds (14%, 255), money-market funds (7%, 129), QDII (4%, 80), and
others (0.1%, 2).
x Money-market funds usually invest out to 1Y; bond funds typically invest out to 10Y and focus on credit instead of rates.
Insurance companies
x China adopts a minimal solvency margin framework, and there are no plans to move to risk-based capital yet.
x Chinese insurance companies allocate 45% of total investment to bonds (CNY 3.2tn), 31% to bank deposits, 12% to equities
and 12% to other investments (as of May 2013).
x Negotiable deposits are available to certain institutions, i.e., insurance and pension funds (minimum amount of CNY 30mn,
tenor over 5Y for insurance companies). Interest rates are typically materially higher than PBoC benchmark deposit rates.
x Regulated by the China Insurance Regulatory Commission (www.circ.gov.cn)
Pension funds
x The largest pension fund is the National Social Security Fund (NSSF) and the largest commercial fund is China Life.
x Employees typically contribute a pension to their city pension fund, which is sometimes consolidated into provincial funds.
x The long-term goal is to consolidate provincial funds into the NSSF; approximately 40% of NSSF assets are in deposits.
x Provincial funds invest in both bonds and deposits.
Foreign investors
x Foreign investors can currently access China’s domestic bond market under three separate programmes: (1) the PBoC
interbank programme, (2) the QFII programme, and (3) the R-QFII programme.
x Preferential treatment given to CBs and SWFs.
x Total investment quota given to foreign investors for the interbank market was CNY 475bn as of end-2012.
Source: Standard Chartered Research
Ownership by participant – Banks dominate (CNY tn)
20
Ownership by participant – Banks dominate (%)
80
Commercial
bank
15
Commercial
bank
60
10
40
Credit cooperative
Special member
5
Individual
Securities
Insurance
Credit cooperative
Special member
Others
(PBoC, MoF and policy banks)
Individual Insurance
Exchange
NBFI
Securities
Exchange
Others
Funds
20
Source: Chinabond, Standard Chartered Research
Source: Chinabond, Standard Chartered Research
Yield curve flattened on slow growth and tight liquidity (%)
Debt profile – Government bonds and bills (CNY tn)
1.2
4.5
End-2010
4.0
1.0
2013
3.5
0.8
End-2011
3.0
End-2012
0.6
End-2009
2.5
0.4
2.0
0.2
1.5
1.0
Funds
0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
0
NBFI
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
0.0
3M6M 1Y
2Y
3Y
4Y
5Y
6Y
7Y
2013 2016 2019 2022 2025 2028 2031 2034 2037 2040 2043
10Y
Source: Standard Chartered Research
Source: Bloomberg, Standard Chartered Research
28
Local Markets Compendium 2014
China
Rates
Commercial banks – Asset growth is falling
Commercial banks – Constrained ability to expand loan
books further
160
40
140
35
120
30
100
25
80
20
60
y/y growth
(%, RHS)
40
0
2000
7
75
2004
15
50
10
2008
2010
25
Q4-99
2012
Source: PBoC, Chinabond, Standard Chartered Research
70
Bond % of
assets (RHS)
Insurance density (USD)
50
5
40
4
30
3
0
1999
20
Assets
(CNY tn)
1
2003
2005
Q4-05
Q4-07
Q4-09
Q4-11
CH
MT
KR
TW
1K
TH
MY
CN
100
INID
PHLK
VN
10
USHK NO
SG
AE
PT
BH
OM
LT
TT
UY
SV
PK
BD
10
1
0
2001
Q4-03
10K
60
2
2
Q4-01
Cross-sectional comparison of insurance density (2012)
8
6
2007
2009
0
2011
5
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
50
55
60
Source: Standard Chartered Research
Source: Swiss Re, IMF, Standard Chartered Research
Mutual funds – AUM breakdown (CNY tn)
Cross-sectional comparison of mutual funds (2012)
3.0
Equities
Fixed income
Money market
Balanced/mixed
Others
IE
Mutual fund/capita (USD)
2.0
1.5
1.0
0.5
100K
AU
10K
1K
MA
100
10
2010
DE
AE
LT
BG
RU
PA
VN JO
0
2009
NO
TW
TH
CN
INID
PH
PK
SG
HK
CH US
KR
MY
1
2008
5
BW
10
15
2011
20 25 30 35 40 45
GDP PPP/capita (USD '000)
50
55
60
Source: AIMC, ICI, Standard Chartered Research
Source: ICI, Swiss Re, IMF, Ministry of Finance, central banks
Pension funds – Social security fund
Cross-sectional comparison of pension funds (2012)
Held-tomaturity
investment,
% of assets
1.0
100K
50
Pension fund/capita (USD)
1.2
40
0.8
30
0.6
Assets
(govt. pension
fund CNY tn,
LHS)
0.4
0.2
65
1M
2.5
0.0
2007
3
Source: PBoC, Chinabond, Standard Chartered Research
Insurance sector – Bonds’ share is falling
7
4
Government
bonds % of
assets
5
2006
6
LDR (%, LHS)
5
0
2002
8
20
10
CH
10K
MY
NA
1K
LK TH
PH ID
CN
IN
100
BG
HK
SG
NO
TW AT
HU
DE
MT
CS
VN
10
IL
KR JP
FR
US
65
GR
UA
1
0.0
2000
2002
2004
2006
2008
2010
0
2012
0
Source: SSF, CEIC, Standard Chartered Research
5
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
Source: OECD, FIAP, Swiss Re, IMF, local sources including
pension fund associations, Ministry of Finance, central banks
29
50
55
60
65
Asia
Assets
(CNY tn)
20
100
Local Markets Compendium 2014
Offshore Renminbi
Becky Liu | Robert Minikin | Kelvin Lau | Eddie Cheung
General and FX
For monetary policy and economic and financial indicators, please see the China section.
Policy backdrop
Clearing bank
CNH deposit rate for
participating banks
Reserve requirement
Bank of China (Hong Kong) – BoC (HK)
Gross rate set by PBoC; BoC (HK) pays net rate plus distribution from returns on its investment in
the interbank bond market.
Minimum 25% CNH liquidity ratio must be held by authorised institutions, calculated on the same
basis as standard statutory liquidity ratio.
Asia
Source: Standard Chartered Research
Exchange rate framework
Exchange rate regime
China’s exchange rate regime is classified as a crawl-like arrangement; USD-CNH typically
trades close to USD-CNY onshore, albeit not at exactly the same level
Exchange rate target
None for USD-CNH
Intervention instruments
Clearing bank is active in spot and forwards
Convertible?
Fully convertible outside mainland China
Deliverable?
Yes
Fixing time and place
11:00, published at 11:15, Hong Kong
Spot date, fixing
T+2
Fixing methodology
Reflects a weighted average from a survey of 18 contributing banks, with top and bottom 3
quotes excluded
Source: Standard Chartered Research
USD-CNH has converged with onshore rate
Divergence in forwards persists
6.30
6.9
USD-CNY
6.8
6.26
6.7
USD-CNH
6.24
6.6
USD-CNY
Onshore
6.22
6.5
6.4
USD-CNY
NDF
6.28
6.20
USD-CNH
6.18
6.16
6.3
6.14
6.2
6.12
6.1
6.10
0.0
6.0
Jul-10 Nov-10 Mar-11 Jul-11 Nov-11 Mar-12 Jul-12 Nov-12 Mar-13 Jul-13
0.2
0.4
0.6
Years forward
0.8
1.0
Source: Bloomberg
Our estimates of daily market turnover (USD bn)
China’s projected annual total CNY trade settlement
volume (USD tn)
1.4
12
CNH swap
1.2
10
1.0
8
CNH spot
0.8
6
0.6
4
0.4
CNY NDF
2
0
Jul-10
0.2
0.0
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
2009-10
Source: Standard Chartered Research
2011
2012
Sources: PBoC, Standard Chartered Research
30
2013
2014
2015
Local Markets Compendium 2014
Offshore Renminbi
FX
Exchange rate products
Spot
Availability
Daily trading volume
(USD mn)
Average trade size
(USD mn)
Bid/ask spread in CNH
onshore*
NDFs
Options
FX swaps
Yes
6,000
1,000
750
10,000
20
20
30-50
30
See CNY
NA
NA
1M 0.0005,
3M 0.001,6M 0.002,
12M 0.003
SCBHK08
10
Reuters ticker
1-2Y: 0.3 vol
1M 0.0005, 3M 0.001,
6M 0.002, 12M 0.3
SCHK
SCBHK08
* For FX swaps, pips = FX swap points; Source: Standard Chartered Research
Exchange rate regulation – Non-residents
Underlying asset – Trade and FDI
Underlying asset – Financial asset
No underlying asset
Spot
Forwards
Non-residents have free access
to CNH FX market, but trade or
FDI documentation is typically
required to make transfers into
the mainland.
NDFs
NA
Options
FX swaps
Non-residents have free access to
the CNH FX market, but trade or
FDI documentation is typically
required to make transfers into the
mainland.
Standard Chartered Research
Exchange rate regulation – Residents
Resident corporations have access to the onshore FX spot and forward markets. However, in the context of trade
documentation, they can make CNY transfers from the mainland into Hong Kong (or in the reverse direction). Using related
entities, resident corporations therefore have limited indirect access to the USD-CNH spot and forward markets.
Source: Standard Chartered Research
Market participants
Corporates
Real-money
funds
Hedge funds
Interbank
40% x Two-way flows. Chinese importers buy USD for cross-border settlement. Foreign corporates buy USD
forward to hedge Renminbi receivables, and as such, interest grows as they increase their hedge ratios.
x Chinese exporters have incentive to sell USD forward to hedge USD receivables, though there is
reduced interest in this as expectations of CNY appreciation decline.
15% x Mainly buy CNH for investment purposes; they also borrow CNH from the FX swap market.
x CBs and SWFs buy CNH for diversification given liberal offshore regulatory regime.
20% x Two-way interest to express views on CNY appreciation/depreciation. They also trade swaps to
express views on offshore interest rates.
x Relative trade against CNY NDF when the opportunity arises.
25% x FI activity is an important mechanism for the global delivery of CNH FX products.
x Activity reflects FX conversion and funding demand from the broader set of end users they serve.
Source: Standard Chartered Research
31
Asia
Bid/ask spread in CNH
offshore*
Outright forwards
Yes
Local Markets Compendium 2014
Offshore Renminbi
Rates
Bonds
China Government Bonds (CGBs)
Asia
Issuer
Ministry of Finance
Use of proceeds
Curve span
Common tenors
Coupon
Coupon frequency
Day count
Primary market
Auction day
Auction cut-off
Auction results
Auction style
Average issue size
Secondary market
Average trade size
Daily trading volume
Quotation convention
Settlement period
Bid/offer spread
Regulations
Custodian
Budget deficit
2Y to 30Y at issue
3Y, 5Y, 7Y, 10Y, 15Y, 30Y
Fixed
Semi-annual
Act/365
Policy bank bonds
China Development Bank (CDB),
Agricultural Development Bank of China
(ADBC), Export-Import Bank of China
(EXIMCH)
General funding
2Y to 15Y at issue
3Y, 5Y
Fixed/floating
Semi-annual/quarterly
Act/365
Irregular
09:30-10:30
Irregular
Dutch auction
CNY 1-5bn
NA (issued via book building)
CNY 10-50mn
CNY 50-200mn
CNY 1-20mn
CNY 10-150mn
NA
CNY 1-3bn
Cash price (2 decimals)
T+3
3-10bps
5-20bps
CMU, with linkage to Euroclear, Clearstream
Source: Bloomberg, Standard Chartered Research
USD-CNH CCS curve over time (%)
3.0
Jul-13
2.5
End 2012
2.0
End 2011
1.5
1.0
0.5
End 2010
0.0
-0.5
-1.0
1Y
2Y
3Y
4Y
5Y
Source: Bloomberg
Swaps
Main product
Average daily market volume
Average ticket size
Average bid/offer spread
Term
Liquid up to
Settlement
Coupon frequency
Convention
Floating-rate reference
Floating-rate ticker
Ticker (2Y)
Floating-rate reference calculation
Cross-currency swaps
USD 100-300mn
USD 10-50mn
2-7bps
1-7Y
7Y
T+2
Quarterly
Act/360
3M US LIBOR
US0003M
CGUSSW1
CNH HIBOR was launched on 24 June 2013, covering tenors
including O/N, 1W, 2W, 1M, 2M, 3M, 6M, and 12M. It is
published at 11:15 Hong Kong time each business day, by
taking the average of quotations submitted by 15-18 banks
(currently 16) between 10:30-11:00 and removing the highest
and lowest 3 quotes. Value date for overnight tenor is T+0,
and for all other tenors is T+2.
Source: Standard Chartered Research
Source: TMA, HKMA, Standard Chartered Research
32
Local Markets Compendium 2014
Offshore Renminbi
Rates
Account opening
Cash account
Depository account
Trading account
Process duration
Local bank account
Local custodian
Yes
Up to 1 week
Special requirements
Offshore Renminbi bonds are now traded in various markets, and the settlement process varies across different domestic
settlement systems. We summarise the existing systems below. The diagram illustrates the Hong Kong settlement process.
x Hong Kong: Bonds are settled via CMU, with linkage to Euroclear/Clearstream.
x Taiwan: Bonds are settled via TDCC, with linkage to Euroclear/Clearstream. Only domestic investors and foreign investors
that have licence (FINI) can currently access Formosa bonds.
x Singapore: bonds are settled via CDP, with linkage to Euroclear/Clearstream.
Asia
Trade and settlement flowchart
Input of SI on S in batches
Send SI
Delivering Participant
Securities Settlement of
Matched Transaction
Trade confirmation
Pre-matching
on S-1/S
CMU
Client
Securities Settlement of
Matched Transaction
Trade confirmation
Receiving Participant
Input of SI on S in batches
Send SI
Electronic Money
Instructions
(for DVP only)
Credit Instruction
Designated Bank A/C of
Delivering Participant
Trade Data or Settlement Instruction (SI) –
automatic
RTGS of the Hong Kong Interbank Clearing Limited
Securities Settlement – automatic
Money Settlement – automatic
Debit Instruction
Designated Bank A/C of
Receiving Participant
Pre-matching by Phone/Fax - manual
Source: Standard Chartered Research, HKMA, BIS
Regulations and taxation
Tax types
Additional notes
Foreign investment regulations Subject to local
regulation
Investment in offshore Renminbi securities is subject to local
regulations. Currently, Hong Kong and Singapore do not restrict
foreign investment in Renminbi securities issued/traded locally, but
there are restrictions on foreign investors’ participation in Taiwan’s
domestic securities denominated in Renminbi (i.e., Formosa bonds).
Income tax for non-residents
Subject to local
regulation
Hong Kong and Singapore do not have WHT, but Taiwan applies a
0-20% tax to Formosa bonds.
Capital gains tax
Subject to local
regulation
Hong Kong and Singapore do not have capital gains taxes. In Hong
Kong, a corporate income tax rate of 16.5% is applied to all profits
derived from Hong Kong, including bond investments. Offshore
CGBs, in addition to EFB/Ns and Hong Kong government bonds,
are exempt.
Source: Standard Chartered Research
33
Local Markets Compendium 2014
Offshore Renminbi
Rates
Asia
Market participants
Central banks
x Foreign central banks are among the biggest holders of offshore China Government Bonds (CGBs). We estimate that they
currently hold 30-50% of total outstanding offshore CGBs as part of their reserve diversification effort. While their investments
in China’s onshore bond markets are subject to approvals and quota restrictions, there are no restrictions on their participation
in the offshore bond market.
x Some foreign central banks invest in bonds issued by Chinese policy banks and multilateral issuers, and in deposit products
in the offshore Renminbi bond market.
Commercial banks
x With a few exceptions (such as CGBs, which are issued via auction), Dim Sum bonds are generally underwritten by
commercial banks, mostly based in Hong Kong. They are market makers for all Dim Sum bonds and are also important
holders of the securities.
x Their holdings of Dim Sum bonds are currently skewed towards credit owing to the diminishing advantages of holding offshore
CGBs (due to factors such as liquidity ratio calculation). While there are no statistics on the holding structure of the Dim Sum
bond market, we estimate that they hold 30-40% of outstanding Dim Sum bonds (and a lower percentage, likely around 10%,
of offshore CGBs).
Real-money investors (funds, insurance companies)
x Real-money investors hold a mixture of CGBs and credit products. Most dedicated Dim Sum bond funds invest more heavily
in credits and certificates of deposit (CDs), while macro strategy funds typically invest in CGBs. Due to the currently limited
availability of long-dated securities in this market, insurance companies also participate in shorter-dated securities such as
3Y-5Y or above.
x In January 2013, the SFC authorised the first Renminbi-denominated money-market fund, which is also eligible for MPF
investment in Hong Kong. In March 2013, the first Renminbi-denominated paper gold was authorised. In May 2013, the first
Dim Sum bond ETF denominated in Renminbi was authorised for listing on the Hong Kong stock exchange.
Hedge funds
x Hedge fund investors’ participation in the cash bond portion of the offshore Renminbi market remains light, mainly focused on
high-yield credits such as Chinese property bonds.
x Hedge funds have a much bigger share of activity in the CNH interest rate derivatives market, in particular USD-CNH CCS.
Retail
x Retail investors typically invest in retail offshore Renminbi bonds, mainly issued by the Ministry of Finance (CGBs) and policy
banks. These securities typically have higher yields than conventional institutional tranches of similar tenors.
Source: Standard Chartered Research
Offshore centres
Hong Kong
Singapore
Taiwan
2
London
RMB deposits
RMB 695bn
RMB 100bn
RMB 77bn
RMB 5.1bn4
Clearing bank
BOC HK
ICBC Singapore branch
BOC Taipei branch
Under discussion
Personal account
arrangement
Local residents can
convert up to CNY
20,000/day under
personal account, at
CNY exchange rate. No
limit for non-residents,
but at CNH exchange
rate
No conversion limit for
residents or nonresidents, at CNH rate
Local residents can
convert up to CNY
20,000/day under
personal account, at
CNY exchange rate
No conversion limit for
residents or nonresidents, at CNH rate
PBoC swap
CNY 400bn
CNY 300bn
No (under discussion)
CNY 200bn
Offshore RMB
bond issuance
x No regulatory approval x No regulatory approval x Formosa bond
needed locally
needed locally
issuance requires
regulatory approval
x Settled via CMU,
x Settled via CDP,
locally; mainland
linkage to
linkage to
issuers are not yet
Euroclear/Clearstream
Euroclear/Clearstream
eligible
x Subject to 0-15% tax
depending nature of
issuers and investors
x Greater China RTC
x Southeast Asia RTC
x Domestic/cross-straits
RMB usage
x Pilot schemes/new
x Commodities hub
Products
x Private banking
x Dim Sum bond market
Focus markets
1
3
1
As of Jul-2013, 2Reported Jul-2013 3As of Jul-2013, 4As of Dec-2012; Source: Standard Chartered Research
34
x No restrictions on bond
issuance/investment
x Global treasury centre
x Global FX trading
x Asset management
Local Markets Compendium 2014
Offshore Renminbi
Rates
Offshore China government bond market has grown
modestly in 2013 (Outstanding offshore CGB, CNY bn)
Offshore CGB bond yield curve over time (%)
70
3.5
60
3.0
50
Sep-13
End 2012
2.5
End 2011
40
2.0
30
End 2010
20
1.5
10
1.0
0.5
2009
2010
2011
2012
2013
1Y
2Y
3Y
4Y
5Y
6Y
7Y
8Y
9Y
10Y
Source: Bloomberg
Source: Bloomberg, Standard Chartered Research
Monthly redemption profile of Dim Sum bonds and CDs
Deposit growth across various offshore Renminbi centres
CNY bn
CNY bn
45
800
40
Hong Kong
700
35
600
30
500
25
400
20
15
300
10
200
5
100
0
Sep-13 Nov-13
Jan-14
Mar-14 May-14
Jul-14
Taiwan
0
2004
Sep-14 Nov-14
2005
2006
2007
2008
2009
2010
2011
2012
2013
Source: Bloomberg, Standard Chartered Research
Source: Bloomberg, Standard Chartered Research
Dim Sum bond market is skewed towards short-dated
securities (%)
Financial issuers have the biggest share of Dim Sum
bond market (%)
60%
CD
50%
Greater China corporates
40%
CGBs
30%
Chinese banks
20%
Foreign corporates
Foreign banks
10%
Supernationals
0%
<1Y
1-2Y
2-3Y
3-4Y
4-5Y
0% 5% 10% 15% 20% 25% 30% 35% 40% 45%
5Y+
Source: Bloomberg, Standard Chartered Research
Source: Bloomberg, Standard Chartered Research
35
Asia
0
Local Markets Compendium 2014
Hong Kong
Becky Liu | Eddie Cheung | Kelvin Lau | Robert Minikin
Asia
General
Monetary policy framework
Monetary policy tools
Name
Reserve requirement
No reserve requirements for banks
Hong Kong Monetary Authority
(HKMA)
Policy target
Exchange rate stability
Independence
High
Policy rate
No policy rate per se, but the base
rate is the rate from which discount
rates for repo transactions through the
discount window are computed
Bloomberg ticker
HKBASE Index
Deciding body
HKMA
Policy decision-making Formula-based; set at 50bps above
the prevailing US FFTR or the
average of the 5-day MA of the
overnight and 1M HIBORs, whichever
is higher
Decision meeting
NA
frequency
Announcement time
Every day before the interbank market
opens in Hong Kong
Press conference
NA
Minutes published
NA
Open-market
To ensure smooth functioning of the
operations (OMOs)
money and foreign exchange markets
Quarterly inflation
NA
report
OMOs
Achieving liquidity management in line with Currency Board
principles via:
x Overnight (discount window) and intraday repos of EFBNs
x Issuing and buying EF paper
x Direct buying and selling in the FX market
Linked Exchange Rate System
x Note-issuing banks are required to submit USD (at USDHKD 7.80) to the HKMA for the account of the Exchange
Fund in return for Certificates of Indebtedness.
x Under the strong-side Convertibility Undertaking, the HKMA
undertakes to buy USD from banks at 7.75. Under the
weak-side Convertibility Undertaking, the HKMA undertakes
to sell USD at 7.85.
Source: HKMA, Standard Chartered Research
Source: HKMA, Standard Chartered Research
Exchange rate framework
Currency board (IMF)
USD-HKD kept within the Convertibility Band of 7.75-7.85
Through spot USD-HKD onshore
Fully convertible
Yes
11:00, Hong Kong
T+2
Average mid-quote of 19 banks excluding highest and lowest 3 quotes
Exchange rate regime
Exchange rate target
Intervention instruments
Convertible?
Deliverable?
Fixing time and place
Spot date, fixing
Fixing methodology
Source: HKMA, Standard Chartered Research
Economic and financial indicators^
Government balances (% of GDP)
2011
2012
2013F
2014F
8
Real GDP, change
4.9
1.5
3.4
4.0
7
CPI inflation*
5.3
4.1
4.5
4.5
Current account/GDP
4.8
1.3
2.5
3.5
6
FX res./imports**
7.1
7.5
7.5
7.5
5
Fiscal balance/GDP^
3.8
3.1
2.0
2.5
Primary balance/GDP
3.8
3.2
2.0
2.5
Gen. govt. debt/GDP
0.6
0.6
0.5
0.5
External debt/GDP
395
397
400
402
3M HIBOR***
0.38
0.40
0.40
0.55
AAA
AAA
S&P
Country
rating
Moody’s
Aa1
Aa1
Fitch
AA+
AA+
2.5
General govt.
debt (RHS)
2.0
Fiscal balance
1.5
4
1.0
3
2
0.5
1
0
0.0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013F 2014F
^Fiscal year starts in April; *yearly average; **months of imports, ***year-end;
Source: IMF, IIF, Standard Chartered Research
Source: CEIC, Standard Chartered Research
36
Local Markets Compendium 2014
Hong Kong
FX
Exchange rate products
Spot
21,000
7,000
10-20
20-50
0.0003
NDFs
Options
FX swaps
Yes
1,000
47,000
30
10-15
0.15 vol
1M 0.0002, 3M 0.0003,
6M 0.0005, 12M 0.001
NA
1M 0.0003, 3M 0.0005,
6M 0.0007, 12M 0.001
NA
NA
SCBHK09
SCHK
SCBHK09
*Versus USD; for FX swaps, bid/ask spread refers to swap points vs. USD; Source: BIS, Triennial Central Bank Survey, September 2013, Standard Chartered Research
Exchange rate regulation – Non-residents
Spot
Underlying asset – Trade and FDI
Underlying asset – Financial asset
No underlying asset
Forwards
NDFs
No restrictions
Options
NA
FX swaps
No restrictions
Under Basic Law Article 112, “No foreign exchange control policies should be applied in Hong Kong SAR”.
Source: HKMA, Standard Chartered Research
http://www.basiclaw.gov.hk/en/basiclawtext/chapter_5.html
http://www.info.gov.hk/hkma/eng/public/fs99/fs09.pdf
Exchange rate regulation – Residents
As above, the HKD is freely convertible and no exchange controls apply to residents or non-residents.
Source: HKMA, Standard Chartered Research
Market participants
Corporates
Real-money
funds
Hedge funds
Interbank
40% x Two-way flows from local corporates; several market players have USD payables as well as USD
receivables.
x Infrequently, large M&A transactions, typically purchasing overseas FX.
25% x Linked to management of exposure to local equity market.
15% x Spot activity is light, with option flows typically linked to periodic ‘de-peg’ speculation amid CNY gains.
20% x China-linked entities periodically bid USD-HKD to help meet liquidity needs.
x Two-way flows given international banks’ large multi-currency balance sheets.
Source: Standard Chartered Research
HKD REER and NEER – The HKD rebounds toward its
past-decade average value
Hong Kong’s BoP remains healthy
HKD bn per quarter
600
140
130
NEER
C/A
Portfolio
Other
BoP
400
120
FDI
200
110
0
100
90
-200
REER
80
-400
70
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
-600
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: BIS
Source: IMF, C&SD
37
Asia
Availability
Daily trading volume
(USD mn)
Average trade size
(USD mn)
Bid/ask spread in HKD
onshore*
Bid/ask spread in HKD
offshore*
Reuters ticker
Outright forwards
Yes
Local Markets Compendium 2014
Hong Kong
Rates
Bonds
EFB
Asia
Issuer
EFN
HKGB
HK Government (unsecured
liabilities)
Develop local bond market
HKMA (fully backed by HKMA’s FX reserves)
Use of proceeds
Curve span
Common tenors
Coupon
Coupon frequency
Day count
Primary market
Auction day
Auction cut-off
Auction results
Auction style
Average issue size
Secondary market
Average trade size
Daily trading volume
Quotation convention
Liquidity management
1M-12M
2Y-15Y
NA
Fixed
Semi-annual
Act/365
Tuesday
Irregular
10:30 (but orders from clients need to be submitted by 10:00)
Before 15:00 (usually around 11:30)
Multiple-price (2 decimals)
HKD 3-32bn
HKD 600mn-1.2bn
HKD 3-5bn
HKD 500mn-2bn
HKD 5-20bn
Yield (3-4 decimals)
HKD 50-200mn
HKD 10-100mn
HKD 500mn-2bn
HKD 50-500mn
Cash price (2 decimals)/yield (3 decimals)
T+0/T+1 (pre-/post-11:00,
T+0/T+1 (pre-/post-11:00)
preferably T+1)
2-3bps
5-10bps
Settlement period
Bid/offer spread
Regulations
Custodian
CMU or custodian banks
Source: HKMA, Standard Chartered Research
Rising outstanding Hong Kong government bonds and
Exchange Fund notes and bills (HKD bn)
Average daily turnover – Retreat from 2011 highs
90
800
8
80
700
7
600
6
500
5
400
4
300
3
20
200
2
10
100
1
0
0
2001
70
60
50
EFBs & EFNs
(RHS)
HK
Government
bonds
40
30
0
2008
2009
2010
2011
2012
2013
Government
bond turnover
(HKD bn)
Exchange bills
and bonds
(HKD bn,
RHS)
2003
2005
2007
2009
Source: HKMA, Standard Chartered Research
Source: HKMA
Swaps
Floating-rate reference calculation
Main product
Average daily market volume
Average ticket size
Average bid/offer spread
Term
Liquid up to
Settlement
Coupon frequency
Convention
Floating-rate reference
Floating-rate ticker
Ticker (2Y)
Interest rate swaps
HKD 3-5bn
HKD 100-500mn
1-3bps
1-15Y
1-10Y
T+0/T+1 (pre-/post-11:00)
Quarterly
Act/365
3M HIBOR
HIHDO3M (Bloomberg)
HDSW2 (Bloomberg)
900
800
700
600
500
400
300
200
100
0
2011
2013
The Hong Kong Interbank Offered Rate (HIBOR) fixing is
calculated around 11:00 each business day. Quotations are
obtained from 20 banks designated by the Hong Kong
Association of Banks (HKAB) for deposit maturities between 1
and 12 months. The middle 14 quotations for each maturity
are averaged and rounded up to the fifth decimal place.
Source: Bloomberg, Reuters, Standard Chartered Research
Source: Bloomberg, The Hong Kong Association of Banks
38
Local Markets Compendium 2014
Hong Kong
Rates
Account opening
Cash account
Euroclear or local bank
Special requirements
None
Depository account
Euroclear or local custodian
Trading account
Yes
Process duration
Approximately 1-2 weeks
Trade and settlement flowchart
Send SI
Asia
Input of SI on S in batches
Delivering Participant
Securities Settlement of
Matched Transaction
Trade confirmation
Pre-matching
on S-1/S
CCASS
Client
Securities Settlement of
Matched Transaction
Trade confirmation
Receiving Participant
Input of SI on S in batches
Send SI
Electronic Money
Instructions
(for DVP only)
Credit Instruction
Designated Bank A/C of
Delivering Participant
Trade Data or Settlement Instruction (SI) –
automatic
Electronic Clearing System of the Hong Kong
Interbank Clearing Limited
Securities Settlement – automatic
Money Settlement – automatic
Debit Instruction
Designated Bank A/C of
Receiving Participant
Pre-matching by Phone/Fax/File Transfer –
manual
Note: Standard Chartered can be delivering participant or receiving participant depending on client instruction; Source: Standard Chartered Research
Regulations and taxation
Tax types
Additional notes
Foreign investment regulations Not restricted
Income tax for non-residents
Nil
Capital gains tax
Nil, but profits tax of
16.50%
Foreign and local investors have equal access to local securities.
Capital gains are not taxed in Hong Kong. A taxpayer is only subject
to Hong Kong profits tax if carrying on a business in Hong Kong and
earning Hong Kong-sourced profits from the business. Interest
income and gains on disposal or redemption of Hong Kong
Government Bonds/HK EFBNs (if applicable) are specifically
exempt from profits tax under the Tax Ordinance.
Source: Standard Chartered Research
39
Local Markets Compendium 2014
Hong Kong
Rates
Asia
Market participants
Banks
x Commercial banks are by far the biggest holder of EFBs and EFNs. Licensed banks in Hong Kong held 88% of total EFBs and
EFNs as of July 2013. They also hold a material portion of bonds issued under the HKSAR government bond programme, but
likely a lower percentage than EFB/Ns. Holdings of such securities are mainly driven by the need for liquidity management;
EFB/Ns can be used to access the HKMA’s discount window as they are fully backed by the FX reserves (but not Hong Kong
government bonds). The discount rate for using EFB/Ns to access overnight HKD liquidity from the HKMA through repo
agreements is the base rate (currently at 0.5%) for the first 50% of eligible collateral held by a bank, or is increased by 5% of the
day’s overnight HIBOR rate, whichever is higher.
x Banking books usually target up to 5Y; trading desks do not have specific tenor preferences.
x Regulated by the HKMA (http://info.gov.hk/hkma/)
Pension funds
x There are two types of pension schemes: (1) Mandatory Provident Fund (MPF), a mandatory scheme introduced in 2000, and (2)
Occupational Retirement Scheme Ordinance (ORSO), which operated before the introduction of the MPF and has co-existed
with the MPF since 2000. MPF funds were previously selected by employers. Since 1 November 2011, employees are allowed to
transfer the employee’s portion of the MPF contribution to a trustee and scheme of their own choice.
x As of end-Q1-2013, Hong Kong pension funds invested 59% in domestic securities and 41% overseas: 14% in North America,
11% in Europe, 6% in Japan, and 10% in the rest of Asia. By type of security, 65% were invested in equities, 20% in bonds, and
15% in deposits and cash. 9% of total assets, or c.HKD 41bn, were invested in domestic bonds.
x Regulated by the Mandatory Provident Fund Schemes Authority (MPFA) (http://www.mpfa.org.hk)
Insurance companies
x Requirements for companies to carry out insurance business in or from Hong Kong include: (1) capital requirement (minimum
paid-up capital of HKD 10mn; HKD 20mn for a composite insurer or an insurer wishing to carry on statutory classes of insurance
business, or HKD 2mn for a captive insurer); (2) solvency requirement (i.e., maintain assets in excess of liabilities of not less than
a required solvency margin determined by insurer type); (3) fitness and properness of management and shareholders; and
(4) adequacy of reinsurance arrangements.
x Insurance companies owned HKD 19bn of bonds as of end-2011. Total assets maintained in Hong Kong were HKD 103bn,
including 31% in deposits and cash, 17% in bonds, 5% in insurance debt, 3% in letters of credit, 7% in investments in
associated/subsidiary companies, 6% in fixed assets, 25% in mortgage portfolios, and 7% in others as of end-2011.
Others
x There are no restrictions on offshore investors accessing the bond or derivatives markets in Hong Kong.
x Retail investors typically only participate in the iBond (inflation-linked bond) issued under the HK government bond programme.
x Money-market/cash management funds must maintain an average portfolio maturity not exceeding 90 days and not purchase an
instrument with a remaining maturity of more than 397 days, or two years in the case of government and other public securities.
x Regulated by the Securities and Futures Commission (http://www.sfc.hk)
Standard Chartered Research
Outstanding HKD bonds by types of issuers (HKD bn)
Outstanding HKD bonds by types of issuers (%)
700
60
Central bank
(Exchange
Fund)
600
500
Non-MDB
overseas
borrowers
400
300
Multilateral
development
banks
40
Local
corporates
Banks and FIs
20
Others
0
2000
2002
2004
2006
2008
Multilateral
development
banks
30
200
100
Non-MDB
overseas
borrowers
50
Others
10
2010
0
2000
2012
2002
2004
2006
Central bank
(Exchange
Fund)
Banks and FIs
Local
corporates
2008
Source: CEIC, Standard Chartered Research
Source: CEIC, Standard Chartered Research
Yield curve over time – Rising (%)
Debt profile – Very short maturity (HKD bn)
3.5
2.5
End-2009
50
2013
40
End-2011
30
2.0
1.5
20
1.0
0.5
0.0
2012
60
End-2010
3.0
2010
10
End-2012
0
1Y
2Y
3Y
4Y
5Y
7Y
10Y
15Y
2013
Source: Bloomberg, Standard Chartered Research
2015
2017
2019
2021
Source: Bloomberg, Standard Chartered Research
40
2023
2025
2027
Local Markets Compendium 2014
Hong Kong
Rates
Commercial banks – Asset growth is rising
Commercial banks – LDR is rising
18
16
14
Assets
(HKD tn)
12
30
80
25
70
20
60
10
15
8
10
6
y/y growth
(%, RHS)
2
40
30
2007
2008
2009
2010
2011
2012
6
4
20
0
2
10
-5
2006
8
Government
bonds % of
assets
0
Q4-07
2013
0
Q4-08
Q4-09
Q4-10
Q4-11
Q4-12
Source: CEIC, Standard Chartered Research
Source: CEIC, Standard Chartered Research
Insurance sector – Assets maintained in Hong Kong
Cross-sectional comparison of insurance density (2012)
100
20
80
Fixed and
variable
interest
securities
(% of assets,
RHS)
60
40
20
0
2004
10K
25
Insurance density (USD)
Assets
(HKD bn)
120
2005
2006
2007
2008
2009
2010
15
10
MY
TH
CN
100
INID
PHLK
VN
10
USHK NO
SG
AE
PT
1K
BH
OM
LT
TT
UY
SV
PK
BD
0
5
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
50
55
60
Money market
Balanced/mixed
Cross-sectional comparison of mutual funds (2012)
Others
1M
IE
1.2
1.0
0.8
0.6
0.4
100K
AU
10K
1K
MA
100
10
NO
DE
AE
LT
BG
RU
PA
VN JO
1
0.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
CH US
TW
TH
CN
INID
PH
PK
SG
HK
KR
MY
0.2
0
5
BW
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
50
55
60
Source: SFC, Standard Chartered Research
Source: ICI, Swiss Re, IMF, Ministry of Finance, central banks
Equities, not bonds, dominate MPF assets
Cross-sectional comparison of pension funds (2012)
100K
Assets
(MPF, HKD tn)
400
Pension fund/capita (USD)
30
450
28
350
26
300
Debt securities
% of assets
(RHS)
250
200
150
2006
2007
2008
65
Source: Swiss Re, IMF, Standard Chartered Research
Mutual fund/capita (USD)
1.4
TW
1
0
2011
Mutual funds – Fixed income funds’ share is rising (USD tn)
Fixed income
KR
5
Source: OCI, Standard Chartered Research
Equities
CH
MT
2009
2010
2011
24
22
CH
10K
MY
NA
1K
LK TH
PH ID
CN
IN
100
BG
US
HK
SG
NO
TW AT
HU
DE
MT
CS
VN
10
IL
KR JP
FR
65
GR
UA
1
20
2012
0
Source: MPFA, Standard Chartered Research
5
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
Source: OECD, FIAP, Swiss Re, IMF, local sources including
pension fund associations, Ministry of Finance, central banks
41
50
55
60
65
Asia
0
2005
10
50
5
4
12
LDR (%, LHS)
Local Markets Compendium 2014
India
Nagaraj Kulkarni | Samiran Chakraborty | Anubhuti Sahay
Asia
General
Monetary policy framework
Monetary policy tools
Name
Policy target
Reserve requirement/liquidity ratio
x Commercial banks need to maintain 4.0% of their net
demand and time liabilities (NDTLs) in cash with the RBI in
their current account.
x Another 23% of NDTLs have to be held in government
securities, gold or cash under the statutory liquidity ratio
(SLR).
Reserve Bank of India (RBI)
Medium-term WPI inflation of
4.0-4.5%
Independence
High
Policy rate
Repo rate
Bloomberg ticker
INRPYLDP Index
Deciding body
The RBI governor, supported by a
Technical Advisory Council
Policy decision-making The RBI governor
Decision meeting
Every 45 days, quarterly and midfrequency
quarterly
Announcement time
11:00 or 12:00 Mumbai time
Press conference
15:00-16:00 after quarterly meetings
Minutes published
4 weeks after quarterly meetings
Open-market
To ensure policy rate maintained,
operations (OMOs)
manage liquidity
Quarterly inflation
NA, quarterly macroeconomic review
report
report
OMOs
x RBI buys government securities in the secondary market to
inject liquidity into the system.
x Market Stabilisation Scheme (MSS) is used by the RBI as a
sterilisation tool, whereby the central bank sells government
securities to absorb excess liquidity in the system arising
from large capital flows. The cash raised is kept by the RBI
in a separate government account.
Standing facility
Commercial banks can borrow from or lend to the RBI using
T-bills and dated government securities as collateral. The
liquidity adjustment facility is available twice a day.
Source: RBI, Standard Chartered Research
Source: RBI
Exchange rate framework
Exchange rate regime
Floating (IMF)
Exchange rate target
No target; more active FX intervention recently to mitigate INR volatility
Intervention instruments
Through spot USD-INR and FX forwards
Convertible?
Partially
Deliverable?
No
Fixing time and place
Spot date, fixing
Central bank observation around 12:30, Mumbai
Fixing methodology
Poll by central bank of selected banks in a randomly chosen five-minute window between 11:45
and 12:15 every weekday
T+2
Source: IMF, RBI, Standard Chartered Research
Economic and financial indicators^
Government balances (% of GDP)
2011
2012
2013F
2014F
0
90
Real GDP, change
6.2
5.0
4.7
5.3
-1
80
WPI inflation*
8.7
7.4
6.0
6.0
-2
70
Current account/GDP
-4.2
-4.8
-4.0
-3.5
-3
FX res./imports**
6.56
5.80
6.00
6.00
-8.11
-7.40
-7.30
-6.80
Fiscal balance/GDP
-5.02
-4.18
-3.50
-3.20
Gen. govt. debt/GDP
64.68
63.39
64.00
64.00
-6
External debt/GDP
19.70
21.20
21.60
21.80
-7
8.50
7.50
8.00
8.00
-8
S&P
BBB-
BBB-
Moody’s
Baa3
Baa3
Fitch
BBB-
BBB-
Country
rating
50
-5
Primary balance/GDP
Policy rate***
60
-4
40
30
Fiscal balance
20
General govt.
debt (RHS)
-9
0
-10
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013F 2014F
^Fiscal year starts in April; *yearly average; **months of imports; ***year-end;
Source: CSO, RBI, IMF, Standard Chartered Research
Source: CEIC, Standard Chartered Research
42
10
Local Markets Compendium 2014
India
FX
Exchange rate products
Spot
Yes
Outright forwards
Options
FX swaps
15,000
24,000
3,000
10,000
5
10
0.01
1M 0.02, 3M 0.02,
6M 0.03, 12M 0.03
10
1M 0.01, 3M 0.02,
6M 0.03, 12M 0.05
0.7 vol for all tenors
NA
NA
SCBY
SCBY
Asia
Availability
Daily trading volume
(USD mn)
Average trade size
(USD mn)
Bid/ask spread in INR
onshore*
Bid/ask spread in INR
offshore*
Reuters ticker
* For FX swaps, pips = FX swap points; Source: BIS, Triennial Central Bank Survey (September 2013), Standard Chartered Research
Exchange rate regulation – Non-residents
Spot
Subject to sectoral FDI caps
and invoicing of trade in INR
Subject to SEBI registration
and FII limit for investment in
bonds
Underlying asset –
Trade and FDI
Underlying asset –
Financial asset
Forwards*
Options**
FX swaps
Trade should be invoiced in INR
SEBI registration and mandate from P-note/Overseas
Derivative Instrument holders if FX risk is hedged on
underlying securities
Not allowed
No underlying asset
Not
allowed
*Non-residents (NR) are allowed to access onshore markets only for hedging. **The onshore option market is illiquid and only plain vanilla options are allowed.
For more details, see the RBI website at www.rbi.org.in, including the following links: http://rbidocs.rbi.org.in/rdocs/notification/PDFs/05RM290613FL.pdf;
http://rbidocs.rbi.org.in/rdocs/notification/PDFs/APDIR18_0813.pdf; http://rbidocs.rbi.org.in/rdocs/notification/PDFs/FRTH210711.pdf
Exchange rate regulation – Residents
x RBI approval is required for certain capital account transactions, such as raising ECBs under the approval route.
x Corporates are allowed to trade forwards, options and FX swaps with banks only if there is a genuine underlying transaction.
x Corporates cannot rebook cancelled forward contracts and execute option strategies where they receive premium.
Source: RBI, Standard Chartered Research
Market participants
Corporates
Real-money
funds
Hedge funds
Interbank
35% x
x
40% x
x
0% x
25% x
x
Exporters with USD receivables tend to hedge up to 6M-1Y.
Importers do not actively hedge and usually enter into short-tenor contracts of 3-6M.
Real-money funds other than FIIs that are invested in debt and equities have limited INR exposure.
A few CBs and SWFs invest in the INR through the bond market.
Hedge funds’ exposure to onshore spot is nil, as they prefer not to register with the SEBI.
USD-INR spot and forwards are both very liquid.
Interbank participants are very active in both the spot and forward markets.
Source: Standard Chartered Research
INR REER and NEER – INR NEER has weakened sharply
C/A deficit is beginning to narrow (USD bn per quarter)
C/A
40
120
FDI
Portfolio
Other
30
110
REER
BoP
20
100
10
90
0
80
-10
70
-20
NEER
60
50
1994
-30
-40
1997
2000
2003
2006
2009
2012
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: BIS
Source: IMF, RBI
43
Local Markets Compendium 2014
India
Rates
Bonds
Cash management
bills
Government of India
Manage temporary
Fiscal financing
cash-flow mismatches
1Y to 30Y
1-week to 3M
3M, 6M, 12M
2Y,5Y,7Y,10Y,12Y
35-, 42-, 63-, 70-day
Fixed (a few are
Zero
floating-rate)
Semi-annual
NA
30/360
Act/365
GoI Securities
Issuer
Use of proceeds
Curve span
Common tenors
Asia
Coupon
Coupon frequency
Day count
Primary market
Auction day
T-bills
Friday
Auction cut-off
Auction results
Auction style
Average issue size
Secondary market
Average trade size
Daily trading volume
Quotation convention
Settlement period
Bid/offer spread
Regulations
Custodian
Wednesday
INR 50-100mn
INR 15-20bn
Yield (2 decimals)
T+1
10bps
INR 150-200bn
Price (2 decimals)
2-4bps
Fiscal financing
10Y
Fixed
Semi-annual
30/360
First week of every
month
Ad hoc
12:30
14:00-15:00
Multiple-price
INR 30bn
Uniform-price
INR 40bn
Inflation linked GoI
Securities
Uniform-price
INR 10bn
NA
INR 5-10bn
Price (2 decimals)
40bps
Local custodian
Source: Bloomberg, Standard Chartered Research
Gradual rise of the government bond market
Yearly trading turnover ratio – Trading activity picking up
35
30
USD bn (RHS)
25
600
2.2
500
2.0
400
1.8
300
1.6
200
1.4
100
1.2
20
15
10
INR tn (LHS)
5
0
2006
2007
2008
2009
2010
2011
2012
1.0
2009
0
2013
Source: RBI, Standard Chartered Research
2011
2012
2013
Source: RBI, Standard Chartered Research
Swaps
Main product
Average daily market volume
Average ticket size
Average bid/offer spread
Term
Liquid up to
Settlement
Coupon frequency
Convention
Floating-rate reference
Floating-rate ticker
Ticker (2Y)
2010
Floating-rate reference calculation
Interest rate swaps
INR 70-100bn
INR 250mn
3-5bps
3M-10Y
1-5Y
T+1
Semi-annual
Act/365
O/N NSE MIBOR
INRONDFIX=NS (Reuters)
IRSWO2 Curncy (Bloomberg)
The floating rate is obtained by daily compounding of the
overnight Mumbai Interbank Offered Rate (MIBOR) as
published by the Fixed Income Money Market and Derivatives
Association of India and the National Stock Exchange of India.
It appears on Reuters Screen MIBR=NS under the heading
MIBOR as of 09:40 IST.
Source: Bloomberg, Reuters, Standard Chartered Research
Source: 2006 ISDA Definitions
44
Local Markets Compendium 2014
India
Rates
Account opening
Cash account
Local bank
Special requirements
Depository account
Local custodian
Trading account
Yes
Process duration
Approximately 4 weeks
Trade and settlement flowchart
Foreign
investor
CCIL: Clearing Corporation of India
PDO-NDS: Public Debt Office Negotiated
Dealing System
1. Transaction execution
Counterparty
2. Broker note/confirmation (not
necessary for GoISecs/T-bills)
3. Settlement and FX conversion instruction
4. Money wire (USD)
7. NDS-OM trade matching
between Local Custodian and
Counterparty
8. CCIL to directly debit/credit
bond A/C/Cash account of the
Local Custodian/Counterparty
Local
custodian
6. Settlement order
CCIL
(PDO-NDS)
9. Debit/credit confirmation
CCIL
(PDO-NDS)
5. INR Conversion
Bond A/C
Investor
INR A/C
Investor
safe keeping
A/C
INR A/C
Investor
Counterparty
10. DVP
settlement
(T+1)
Investor
Counterparty
Linked
Linked
Source: SEBI, Standard Chartered Research
Regulations and taxation
Tax types
Additional notes
Foreign investment regulations Restricted
FIIs can invest up to a total of USD 19.5bn in GoISecs, and USD
5.5bn in T-bills. In addition, sovereign investors can invest up to
USD 5bn in GoISecs.
Income tax for non-residents
As per DTA
Capital gains tax
As per DTA
Source: SEBI, Standard Chartered Research
45
Asia
Foreign investors can invest in government securities through two routes:
x As a Foreign Institutional Investor (FII). This requires registration with The Securities and Exchange Board of India (SEBI)
before account opening. Documents required for registration with SEBI include:
- Registration form
- Certified copies of relevant clauses (permitting the stated activities) of Memorandum of Association, Article of Association
or Article of Incorporation
- Audited financial statements and annual report for the last year
x As a Qualified Foreign Investor (QFI) with a Qualified Depository Participant (QDP):
- No registration with SEBI is needed. A person has to be in a country that is a member of Financial Action Task Force
(FATF) standards and has signed MMOU/bilateral MOU. As of now, there are 45 such countries.
- This category excludes FIIs/sub-accounts and non-resident Indians investing under the Portfolio Investments Scheme.
- Key features of investing through the QFI route:
ƒ Trade order to be routed through QDP
ƒ Transactions to be settled on gross basis
ƒ QFI needs to prefund trades on T day
Local Markets Compendium 2014
India
Rates
Market participants
Asia
Scheduled commercial banks
x The largest investors in central government securities (GoISecs), holding c.34.5% of outstanding securities (end-March 2013).
x Mandated to maintain a SLR of 23% of their net demand and time liabilities in approved securities, gold or cash.
x For trading purposes, scheduled commercial banks prefer liquid (benchmark) securities.
x Regulated by the RBI (http://www.rbi.org.in)
Insurance companies
x The second-largest investors in dated government securities, holding c.19% of the total outstanding (as of end-March 13)
x Life insurance companies are stipulated to invest at least 25% of their controlled funds (funds other than those relating to
pension and general annuity business and unit-linked life-insurance business) each in GoISecs and other approved securities.
x Typically invest in long-term (>10Y) securities via both primary and secondary markets, although they are not active traders.
x The state-owned Life Insurance Corporation of India (LIC) is the largest investor among all the insurance companies.
x Regulated by Insurance regulatory and development authority (http://www.irda.gov.in)
Employees’ Provident Funds (EPFs)
x State-run Employees’ Provident Fund Organisation (EPFO) is the largest EPF.
x As of end-March 2013, provident funds held c.7.4% of GoISecs outstanding.
x Mandated to invest at least 25% of their funds in GoISecs and/or mutual funds dedicated to GoISecs (and approved by SEBI).
x Similar to insurance companies, EPFs prefer long-tenor bonds to match their liability profile.
Mutual funds
x Four main types of mutual funds invest in government bonds: gilt funds, income funds, liquid funds and balanced funds.
x While gilt funds invest all of their AUM in government securities (across maturities), income funds invest about 40-50% of
AUM in long-term government securities and the remainder in long-term corporate debt securities.
x Liquid funds mainly invest in T-bills and highly rated CDs and commercial paper. Balanced funds invest 0-25% of their AUM in
government securities, depending on market conditions.
x Regulated by SEBI (www.sebi.gov.in)
FIIs
x Eligible investors in GoISecs include funds, investment trusts, banks, insurance companies, foreign government agencies,
international/multilateral organisations, foreign central banks and SWFs that are registered with SEBI.
x FIIs can invest up to a total of USD 19.5bn in GoISecs, and USD 5.5bn in T-bills. In addition, sovereign investors can invest
up to USD 5bn in GoISecs.
x A few CBs and SWFs have shown interest in investing in Indian government bonds.
x Regulated by SEBI (www.sebi.gov.in)
Source: RBI, IRDA, Life Insurance Council, EPFO Annual Report, Standard Chartered Research
Ownership by participant (%)
Breakdown of government bond issuance profile (%)
50
60
Commercial
banks
40
50
Provident
funds
30
20
10Y-14Y
40
Others
5Y-9Y
30
Insurance
RBI
20
10
20Y>
10
Foreigners
Bank-PD
15Y- 19Y
0
FY05
0
Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13
<5Y
FY06
FY07
FY08
FY09
FY10
Source: RBI
Source: RBI, Standard Chartered Research
Yield curve over time – The curve has inverted (%)
Maturity profile – GoISecs (INR tn)
FY12
FY13
3.0
11
9
FY11
End-2012
7
2.5
2013
End-2011
2.0
1.5
End-2010
1.0
End-2009
5
0.5
0.0
3
O/N 6M 1Y
2Y
5Y
2014
10Y
Source: Bloomberg, Standard Chartered Research
2017
2020
2023
2026
Source: MoF, Standard Chartered Research
46
2029
2032
2035
2038
2041
Local Markets Compendium 2014
India
Rates
Commercial banks – Asset growth is stable
Commercial banks – Credit-to-deposit ratio is stabilising
85
75
80
26
78
24
76
30
74
29
22
65
20
55
y/y growth
(%, RHS)
35
Assets
(INR tn)
2009
2010
2011
2012
16
14
68
12
66
10
64
Q4-07
2013
10
30
8
20
6
0
2001
Insurance density (USD)
40
Investments
(INR tn)
2
25
24
Q4-08
Q4-09
Q4-10
10K
50
12
4
Q4-11
Q4-12
CH
MT
KR
TW
1K
MY
TH
CN
ID
100
PH
IN
VN
10
USHK NO
SG
AE
PT
BH
OM
LT
TT
LK
UY
SV
PK
BD
10
1
0
2003
2005
2007
2009
0
5
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
2011
50
55
60
Source: Various annual reports of IRDA
Source: Swiss Re, IMF, Standard Chartered Research
Mutual funds – Fixed income funds dominate (INR tn)
Cross-sectional comparison of mutual funds (2012)
8
Equities
Balanced/mixed
Fixed income
Money market
Others
Mutual fund/capita (USD)
6
4
2
100K
AU
10K
1K
MA
100
IN ID
PH
PK
10
2012
NO
TW
TH
CN
DE
AE
LT
BG
RU
PA
VN JO
0
2011
SG
HK
CH US
KR
MY
1
2010
5
BW
10
15
2013
20 25 30 35 40 45
GDP PPP/capita (USD '000)
50
55
60
Source: CEIC, ICI, Standard Chartered Research
Source: ICI, Swiss Re, IMF, Ministry of Finance, central banks
Pension funds – Stable ownership of government bonds
Cross-sectional comparison of pension funds (2012)
4.5
3.5
100K
26
24
GoISec % of
investments
(RHS)
Pension fund/capita (USD)
4.0
22
20
3.0
18
2.5
2.0
1.5
2006
16
Investment
corpus EPFO
(INR tn)
2007
2008
2009
65
1M
IE
0
2009
26
Cross-sectional comparison of insurance density (2012)
60
Govt. sec % of
investments
(RHS)
14
27
Source: RBI, Standard Chartered Research
Insurance sector – Bonds’ share is falling
16
28
Government
bonds % of
assets (RHS)
70
Source: Weekly Statistical Supplement, Standard Chartered Research
18
31
CH
10K
MY
NA
1K
LK TH
PH ID
CN
IN
100
BG
US
HK
SG
NO
TW AT
HU
DE
MT
CS
VN
10
IL
KR JP
FR
65
GR
UA
14
1
2010
2011
12
2012
0
Source: EPFO, Standard Chartered Research
5
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
Source: OECD, FIAP, Swiss Re, IMF, local sources including
pension fund associations, Ministry of Finance, central banks
47
50
55
60
65
Asia
2008
32
CDR (%)
72
18
45
25
2007
28
Local Markets Compendium 2014
Indonesia
Jennifer Kusuma | Thomas Harr | Eric Alexander-Sugandi | Fauzi Ichsan
Asia
General
Monetary policy framework
Monetary policy tools
Name
Policy target
Reserve requirements
x Statutory reserves are currently set at 8% of bank’s thirdparty funds, and must be in the form of cash.
x Secondary reserves are currently set at 3% of bank’s thirdparty funds and will be increased to 4% effective 2 December
2013; can be in the form of government and BI securities.
Bank Indonesia (BI)
Headline CPI inflation between
3.5-5.5% per annum
Independence
High, under UU No. 3/2004
Policy rate
BI rate
Bloomberg ticker
IDBIRATE
Deciding body
Board of Governors meeting
(1 governor, 1 senior deputy governor,
4 deputy governors)
Policy decision-making By consensus among board members.
When consensus cannot be reached,
BI governor makes decision
Decision meeting
Monthly (second week of the month)
frequency
for regular meeting. Extraordinary
policy meeting can be held if needed
Announcement time
12:00-14:00 Jakarta time
Press conference
12:00-14:00 Jakarta time
Minutes published
Monetary policy statement same day,
no minutes
Open-market
To ensure policy rate maintained,
operations (OMOs)
manage liquidity, and smooth
interbank money-market volatility
Quarterly inflation
None
report
OMOs
x Liquidity absorption operations, comprises issuance of SBIs,
issuance of shariah SBIs, issuance of term deposits,
issuance of certificates of deposits, sales of reverse repo of
government securities, spot selling of USD, and swap
buying of USD.
x Liquidity injection operations, comprising repo of
government and/or BI securities, spot buying of USD, and
swap selling of USD.
Standing facilities
x Liquidity absorption, comprising deposit facilities and
shariah FASBI.
x Liquidity injection, comprising lending facilities and repo of
shariah SBIs or government sukuks.
Source: BI, Standard Chartered Research
Source: BI, Standard Chartered Research
Exchange rate framework
Floating (IMF)
No target, but active FX intervention to mitigate USD-IDR volatility
Mainly through spot USD-IDR and occasionally through sell/buy FX swaps
Partially
No
10:00 Jakarta time (Jakarta Interbank Sport Dollar Rate - JISDOR),
11:30 Singapore time (offshore)
T+2, fixing 2 days prior to settlement
Exchange rate regime
Exchange rate target
Intervention instruments
Convertible?
Deliverable?
Fixing time and place
Spot date, fixing
Fixing methodology
Polling of onshore banks from 08:00 to 09:45 Jakarta time (onshore)
Volume-weighted average price of actual rates between 07:30-11:00 Singapore time
Source: IMF, BI, Standard Chartered Research
Economic and financial indicators
Government balances (% of GDP)
2011
2012
2013F
2014F
Real GDP, change
6.5
6.2
5.8
6.0
CPI inflation*
5.4
4.3
7.0
6.6
Current account/GDP
0.2
-2.8
-2.9
-1.9
FX res./imports**
8.0
7.5
5.9
6.2
Fiscal balance/GDP
-1.1
-1.9
-2.0
-1.5
Primary balance/GDP
0.1
-0.6
-0.8
-0.3
Gen. govt. debt/GDP
24.4
24.0
23.0
22.0
External debt/GDP
26.4
28.7
32.0
29.0
Policy rate***
6.00
5.75
7.50
7.50
BB+
BB+
Ba1
Baa3
BBB-
BBB-
S&P
Country
rating
Moody’s
Fitch
60
0.0
50
-0.5
40
-1.0
Fiscal balance
30
-1.5
20
General govt.
debt (RHS)
-2.0
-2.5
0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013F 2014F
*Yearly average; **months of imports; ***year-end;
Source: BI, BPS, Standard Chartered Research
Source: MoF, BI, Standard Chartered Research
48
10
Local Markets Compendium 2014
Indonesia
FX
Exchange rate products
Outright forwards
NDFs
Yes
Options
FX swaps
2,464
2,659
500-700
160
667
2
5
5-10
20
10
5 (normal times)
1M 10, 3M 15,
6M 25, 1Y, 35
1M 10, 3M 20,
6M 30, 1Y 40
ABSFIX01
(Industry)
NA
Reuters ticker
1M 5, 3M 10,
6M 20, 1Y 30
NA
JISDOR (Industry)
3 vol for all tenors
NA
OTC
JISDOR (Industry)
*Versus USD; for FX swaps, bid/ask spread refers to swap points vs. USD; Source: BIS, Triennial Central Bank Survey, December 2010, Standard Chartered Research
Exchange rate regulation – Non-residents
Spot
Forwards
NDFs*
Allowed
Allowed, min.
tenor is 1 week
Not allowed
Underlying asset – Trade and FDI
Underlying asset – Financial asset
No underlying asset
Options**
Allowed for rollover
hedging with 3M
minimum tenor
FX swaps
Allowed, min.
tenor is 1 week
Not allowed
For non-residents (NR) who sell IDR, supporting documents trade by trade are required for transactions in excess of USD 100,000 per month for spot, but for all amounts for forwards, options
and FX swaps. For NRs who buy IDR, supporting documents are required for any incoming funds to NR accounts that exceed IDR 500mn per day, but for all amounts for forwards, options and
FX swaps. *Onshore banks are not allowed to engage in NDFs. **The onshore option market is illiquid and only plain vanilla options are allowed. Hence, offshore market players may trade
through the offshore option market.
For more details on FX regulation in Indonesia, see the BI website at http://www.bi.go.id/web/id/ including the following links for relevant FX regulations:
http://www.bi.go.id/web/en/Peraturan/Moneter/pbi_102808.htm, http://www.bi.go.id/web/en/Peraturan/Moneter/bir+71405.htm, http://www.bi.go.id/web/en/Peraturan/Moneter/pbi_132211.htm ,
http://www.bi.go.id/web/en/Peraturan/Moneter/pbi_132111.htm, http://www.bi.go.id/web/en/Peraturan/Moneter/pbi_132011.htm
Exchange rate regulation – Residents
x Purchase of foreign currencies in excess of USD 100,000 per month requires supporting documents.
x Purchase of foreign currencies in excess of USD 100,000 per month should not be used for placement at banks, except if the
purchase is conducted by an exporter who has sold its foreign-currency proceeds within the past six months.
x Underlying transactions include trade activities, payment for services, loan repayments and payments of foreign assets.
Source: BI, Standard Chartered Research
Market participants
Corporates
Real-money
funds
Hedge funds
Interbank
25% x
x
25% x
x
20% x
x
30% x
x
Local manufacturers are typically USD buyers of spot, forwards, swaps; CTAs are typically USD sellers.
MNCs are usually USD buyers through spot, forwards, swaps.
Foreign real-money funds have hedged their USD-IDR FX risk given IDR trend depreciation.
CBs and SWFs involved in IDR bonds typically leave their IDR exposure unhedged.
Hedge funds are involved in shorter-dated instruments such as SBIs, SPNs and short-dated bonds.
They have become less active in USD-IDR NDFs given declining liquidity.
Interbank players are mainly involved in spot and in forwards/FX swaps out to 1 week.
This is due to much better liquidity at the shorter end of the USD-IDR forward curve.
Source: Standard Chartered Research
IDR REER and NEER – The IDR remains overvalued
C/A is deteriorating on a trend basis
USD bn per quarter
C/A
15
120
100
80
Portfolio
Other
BoP
10
REER
FDI
5
60
0
40
NEER
20
0
1994
-5
-10
1997
2000
2003
2006
2009
2012
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: BIS
Source: BI
49
Asia
Availability
Daily trading volume
(USD mn)
Average trade size
(USD mn)
Bid/ask spread in IDR
onshore*
Bid/ask spread in IDR
offshore*
Spot
Local Markets Compendium 2014
Indonesia
Rates
Bonds
Asia
T-bonds
Issuer
Use of proceeds
Curve span
Common tenors
Coupon
Coupon frequency
Day count
Primary market
Auction day
T-bills
ORI (retail bonds)
Ministry of Finance
Fiscal financing
Up to 1Y
Up to 5Y
3M, 6M, 1Y
3Y, 5Y
Zero coupon
Fixed
NA
Monthly
Act/Act
Up to 30Y
5Y, 10Y, 15Y, 20Y, 30Y
Fixed
Semi-annual
Tuesday
Auction cut-off
12:00
Auction results
15:00-16:00
Bookbuilding
Over period of two
weeks
NA
Multiple-price (2 decimals)
At par
Auction style
Average issue size
Secondary market
Average trade size
Daily trading volume
Quotation convention
Settlement period
Bid/offer spread
Regulations
Custodian
IDR 5-10tn
IDR 500bn-2tn
IDR 10-30bn
IDR 50-100bn
IDR 5-10tn
IDR 0.5-1tn
Yield (2 decimals)
10-40bps
10-40bps
Government sukuks
Up to 30Y
Illiquid
Fixed
Semi-annual
Tuesday
12:00
15:00-16:00
Multiple-price
(2 decimals)
IDR 500bn-1.5tn
IDR 7-15tn
IDR 4-10bn
IDR 0.5-1tn
Price/yield (3 decimals)
T+2
20-40bps
IDR 5-10bn
IDR 5-25bn
Yield (2 decimals)
10-40bps
Local custodian
Source: http://www.idx.co.id/id-id/beranda/publikasi/statistik.aspx
Issuance picked up in 2013
Quarterly trading turnover – Still relatively illiquid
1,000
110
0.4
100
900
IDR tn (LHS)
800
0.3
90
80
0.2
700
70
600
USD bn (RHS)
60
500
400
2004
0.1
50
0.0
2005
40
2005
2006
2007
2008
2009
2010
2011
2012
2006
2007
2008
2009
2010
Source: AsianBondsOnline
Source: AsianBondsOnline
Swaps
Floating-rate reference calculation
Main product
Average daily market volume
Average ticket size
Average bid/offer spread
Term
Liquid up to
Settlement
Coupon frequency
Convention
Floating-rate reference
Floating-rate ticker
Ticker (2Y)
Interest rate swaps
Illiquid
IDR 50-100bn
50-70bps
Up to 20Y
Illiquid
T+2
Quarterly
Act/360
3M JIBOR
IHJIBC (Bloomberg)
IHSWV3J2 (Bloomberg)
2011
2012
2013
JIBOR is the average rate contributed by 28 onshore banks,
after eliminating the highest and lowest 25% of submitted
rates.
Source: Standard Chartered Research
Source: BI, Bloomberg
50
Local Markets Compendium 2014
Indonesia
Rates
Account opening
Cash account
Depository account
Local bank
Special requirements
None
Trading account
Local custodian
Process duration
Yes
Minimum 1 week
Trade and settlement flowchart
Counterparty
2. Confirmation
3. Settlement and FX conversion instruction
4. Money wire (USD)
Local
custodian
6. Settlement Order
8. Debit/credit confirmation
Bank
Indonesia*
6. Settlement order
Bank
Indonesia*
7. Debit/credit request
5. IDR conversion
Bond A/C
Investor
IDR A/C
Investor
safe keeping
A/C
IDR A/C
Investor
Counterparty
Linked
Linked
Source: BI, Standard Chartered Research
Regulations and taxation
Tax types
Additional notes
Foreign investment regulations Not restricted
Income tax for non-residents
20% or tax treaty rate
(10%)
Capital gains tax
20% or tax treaty rate
(10%)
Source: Standard Chartered Research
51
9. DVP
settlement
(T+2)
Investor
Counterparty
Asia
* Bank Indonesia conducts the settlement and
clearing of cash (using BI-RTGS) and fixed income
instruments issued by the Government of Indonesia
or Bank Indonesia (using the Bank IndonesiaScripless Securities Settlement System, or BISSSS). Settlement will be done simultaneously
between 08:00-17:00
1. Transaction execution
Foreign
investor
Local Markets Compendium 2014
Indonesia
Rates
Market participants
Asia
Foreign investors
x Foreign investors are still the largest investor class, with 31.07% ownership (of total market size) in September 2013. There
are no restrictions on foreign ownership.
x Foreign central banks are the key buyer of bonds in 2013, adding exposure while other foreign investors reduce holdings.
DMO data indicate a rise in central bank holdings to 23% of the total foreign portfolio in Jul-13, up from 18% in Dec-12
x We estimate that foreign banks and leveraged funds make up about 10-25% of foreign holdings; real-money funds 45-60%;
and central banks and sovereign wealth funds 25-30%.
x Foreign ownership data is available from Bloomberg (IDGBRGN Index).
Banks
x Government bond holdings fell and banks’ LDR increased as the economy recovered from the Asian financial crisis in 1998.
x Banks can use government bonds and SBIs to meet the secondary reserve requirement (4% of capital).
x Recapitalised state banks hold about 18% of total outstanding bonds. They are active in the primary market, prefer tenors up
to 10Y, and usually maintain an 80:20 split between their investment and trading accounts.
x Recapitalised private banks and non-recapitalised banks hold about 9% of total outstanding bonds. They are more active in the
secondary market and usually maintain a split of 50:50 between their trading and investment accounts and invest along the curve.
x Regulated by BI (http://www.bi.go.id)
Non-bank financial institutions (NBFIs)
x NBFIs (insurance companies, pension funds and mutual funds) are active in the primary market and invest along the curve
(regulated by the FSA: http://www.ojk.go.id/).
x The rapid expansion of the industry is a key factor supporting the development of the government bond market.
x There is steady demand from social and public-sector insurance funds, which make up 40% of insurance industry assets, and
from pension funds for 15-30Y bonds.
x The popularity of unit-linked life insurance products has encouraged investment in higher-yielding equities, but the
implementation of the risk-based capital framework in Jan-13 will ensure demand for bonds.
Bank Indonesia (BI)
x BI buys government bonds in the secondary market or via ad-hoc reverse auctions (where BI buys government bonds from
commercial banks).
x BI provides steady demand for bonds during market sell-offs, and can use government bonds as collateral in reverse
repurchase transactions with banks.
x Demand should weaken when BI’s non-tradable government bonds, at about IDR 250tn in 2011, are converted to tradable
bonds in the coming years.
Source: Standard Chartered Research
Ownership by participant – Foreigners are large (IDR tn)
Ownership by participant – Foreigners are large (%)
350
50
Banks and BI
300
Foreigners
250
200
150
Insurance
Mutual fund
100
Pension
2010
2011
2012
30
Foreigners
Mutual fund
0
2008
2013
Insurance
Others
10
50
2009
Banks and BI
20
Others
0
2008
40
2009
2010
2011
2012
Pension
2013
Source: DMO
Source: DMO
Yield curve over time – Broad sell-off in 2013 (%)
Debt profile – Indonesian government bonds (IDR tn)
60
12
End-2009
11
50
10
End-2010
9
2013
8
End-2011
40
30
7
20
End-2012
6
10
5
0
4
3M 2Y3Y4Y5Y 7Y8Y9Y10Y
15Y
20Y
25Y
30Y
2013 2016 2019 2022 2025 2028 2031 2034 2037 2040 2043
Source: Bloomberg
Source: Bloomberg
52
Local Markets Compendium 2014
Indonesia
Rates
Commercial banks – Asset growth is slowing
5
Commercial banks – demand for bonds is recovering
y/y growth
(%, RHS)
8
100
25
90
4
7
20
LDR (%, LHS)
80
6
3
70
15
5
60
2
10
Assets
(IDR qn)
40
Q4-05
5
2006
2007
2008
2009
2010
2011
2012
3
Q4-06
Q4-07
Q4-08
Q4-09
Q4-10
Q4-11
Q4-12
Source: BI
Source: BI
Insurance sector – Government bonds’ share has fallen
Cross-sectional comparison of insurance density (2012)
600
10K
Insurance density (USD)
35
30
500
25
400
20
300
Government
bond % of
assets (RHS)
200
15
10
Asset (IDR tn)
100
CH
MT
KR
TW
MY
TH
CN
IN ID
PH
LK
VN
10
USHK NO
SG
AE
PT
1K
100
4
BH
OM
LT
TT
UY
SV
PK
BD
5
1
0
2003
2004
2005
2006
2007
2008
2009
2010
2011
0
2012
0
Source: MoF, newswires
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
50
Fixed income
Balanced/mixed
Equities
Money market
60
1M
Mutual fund/capita (USD)
200
150
100
50
100K
AU
10K
ID
PH
PK
10
2010
2011
BG
AE
RU
VN JO
0
2009
DE
LT
PA
1
2008
NO
TW
MA TH
IN
CN
100
CH US
KR
MY
1K
SG
HK
5
BW
10
15
2012
20 25 30 35 40 45
GDP PPP/capita (USD '000)
50
55
60
Source: MoF
Source: ICI, Swiss Re, IMF, Ministry of Finance, central banks
Pension funds – Falling bond share
Cross-sectional comparison of pension funds (2012)
100K
35
Assets
(IDR tn)
Pension fund/capita (USD)
180
160
140
120
100
80
60
40
20
0
2005
30
25
Government
bonds % of
assets (RHS)
20
15
10
CH
10K
NA
PH
100
IN
LK TH
CN
ID
2008
2009
2010
2011
HK
SG
NO
TW AT
HU
DE
MT
GR
UA
1
0
2007
BG
US
65
CS
VN
10
IL
KR JP
FR
MY
1K
5
2006
65
Cross-sectional comparison of mutual funds (2012)
Others
IE
0
2007
55
Source: Swiss Re, IMF, Standard Chartered Research
Mutual funds – Equities, mixed assets dominate (IDR tn)
250
5
0
2012
Source: MoF, newswires
5
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
Source: OECD, FIAP, Swiss Re, IMF, local sources including
pension fund associations, Ministry of Finance, central banks
53
50
55
60
65
Asia
1
2005
Government
bonds % of
assets
50
Local Markets Compendium 2014
Malaysia
Danny Suwanapruti | Thomas Harr | Edward Lee | Jeff Ng
Asia
General
Monetary policy framework
Monetary policy tools
Name
Policy target
Independence
Policy rate
Bloomberg ticker
Deciding body
Policy decision-making
Decision meeting
frequency
Announcement time
Press conference
Minutes published
Liquidity framework
x Banks make projections on the maturity profiles of their assets,
liabilities and off-balance-sheet commitments up to 1 year.
x Focus is on the bank’s ability to match liquidity requirements
arising from its maturing obligations with maturing assets.
Open-market
operations (OMOs)
Quarterly inflation
report
Bank Negara Malaysia (BNM)
NA
High
Overnight policy rate
MAOPRATE Index
NA
NA
6 times a year
OMOs
x Issuance of Bank Negara Malaysia Notes (BNMNs)
x Clean borrowing and repo transactions
x Standing facility to borrow or lend funds on a collateralised
basis, with borrowing and lending rates set at OPR +/- 25bps.
18:00 Kuala Lumpur time
NA
Monetary policy statement at
announcement, no minutes
To ensure policy rate maintained,
manage liquidity
NA
Statutory reserve requirement (SRR)
x Banks are required to maintain Statutory Reserve Account
(SRA) balances equivalent to 4% (currently) of their eligible
liabilities.
x SRA balances are allowed to fluctuate between +/-20% of
the prevailing SRR rate, but average fortnightly
maintenance must be at least equal to the SRR rate.
Source: BNM, Standard Chartered Research
Source: BNM
Exchange rate framework
Exchange rate regime
Other managed arrangement (IMF)
Exchange rate target
No target, but active FX intervention to mitigate MYR volatility and ensure MYR NEER reflects
fundamentals
Intervention instruments
Through spot USD-MYR and sell/buy FX swaps onshore
Convertible?
Partially
Deliverable?
No
Fixing time and place
Spot date, fixing
11:10, Kuala Lumpur
Fixing methodology
Polling of banks in Kuala Lumpur from 10:55-11:00
T+2, fixing 2 days prior to settlement
Source: IMF, BNM, Standard Chartered Research
Economic and financial indicators
Government balances (% of GDP)
2011
2012
2013F
2014F
0
Real GDP, change
5.1
5.6
4.7
5.3
-1
CPI inflation*
3.2
1.7
2.3
3.9
11.0
6.4
3.6
4.8
-2
7.4
8.0
7.5
7.4
-3
Fiscal balance/GDP
-5.0
-4.5
-4.0
-3.5
Primary balance/GDP
-2.8
-2.4
-2.1
-1.8
Gen. govt. debt/GDP
51.8
53.5
54.4
54.6
External debt/GDP
28.1
27.2
29.7
32.8
Policy rate***
3.00
3.00
3.00
3.25
S&P
A-
A-
Moody’s
A3
A3
Fitch
A-
A-
Current account/GDP
FX res./imports**
Country
rating
60
50
40
General govt.
debt (RHS)
30
-4
-5
20
-6
-7
10
Fiscal balance
-8
0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013F 2014F
*Yearly average; **months of imports; ***year-end;
Source: Moody’s, CEIC, Standard Chartered Research
Source: Moody’s, CEIC, Standard Chartered Research
54
Local Markets Compendium 2014
Malaysia
FX
Exchange rate products
Spot
Availability
Daily trading volume
(USD mn)
Average trade size
(USD mn)
Outright forwards
Options
FX swaps
125
3,100
10
30
1 vol across the tenors
0-1M 0.0001,
3-6M 0.001,
6-12M 0.002
Yes
2,600
400
5
Bid/ask spread in MYR
onshore*
0-1M 0.002,
3-6M 0.003,
6-12M 0.004
0.002
NA
MYRFIX2
OTC
MYRFIX2
*Versus USD; for FX swaps, bid/ask spread refers to swap points vs. USD; Source: Standard Chartered Research
Exchange rate regulation – Non-residents
Spot
Forwards
Underlying asset – Trade and FDI
Underlying asset – Financial asset
No underlying asset
Options
FX swaps
No restrictions
Not allowed
All invoicing and settlement of exports and imports between residents (R) and non-residents (NR) can be made in foreign currency or MYR. For settlements in MYR, a NR company can obtain
MYR from (a) an external account maintained with an onshore bank, (b) the sale of foreign currency for MYR through an onshore bank or an appointed overseas branch within the same
banking group of an onshore bank, or (c) MYR trade financing through an onshore bank. All MYR sales and purchases are to be settled onshore. As such, a NR cannot remit MYR abroad.
For more details. see the BNM website at http://www.bnm.gov.my/, including the following links:
http://www.bnm.gov.my/microsites/fxadmin/circulars/20120130_circular_domestic_financial_markets.pdf
http://www.bnm.gov.my/microsites/fxadmin/circulars/20100818.pdf, http://www.bnm.gov.my/microsites/fxadmin/circulars/20120130_circular_domestic_financial_markets.pdf
http://www.bnm.gov.my/microsites/fxadmin/new_fea_rules/FEA_rules_Part_2_Non-residents.pdf
Exchange rate regulation – Residents
Residents with domestic borrowings are allowed to convert MYR into a foreign currency, up to an annual limit of MYR 50mn for
corporates and MYR 1mn for individuals.
Source: BNM
Market participants
Real-money
funds
25% x
x
25% x
x
Hedge funds
20% x
Corporates
x
Interbank
30% x
x
Exporters typically hedge through 3-6M forwards given liquidity considerations.
Importers have turned more active as trade surplus has narrowed, trend MYR appreciation reversed.
Real-money funds have raised FX hedge ratios as trend MYR appreciation has reversed.
CBs and SWFs are increasingly involved in the MYR given Malaysia’s high credit quality, bond-market
depth.
Hedge funds typically invest in BNM bills, as an underlying asset is needed to access the onshore
market.
Hedge funds typically leave MYR exposure unhedged, as the position is largely a bet on MYR
appreciation.
Interbank trading is mainly flow-driven and very short-term in nature.
Most interbank trading is in spot and forwards up to 1M.
Source: Standard Chartered Research
MYR REER and NEER – The MYR is cheap
The C/A surplus has fallen sharply (MYR bn per quarter)
115
80
110
60
105
40
100
Portfolio
Other
BoP
0
REER
-20
85
80
FDI
20
95
90
C/A
-40
NEER
75
-60
70
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
-80
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: BIS
Source: IMF
55
Asia
Bid/ask spread in MYR
offshore*
Reuters ticker
Local Markets Compendium 2014
Malaysia
Rates
Bonds
Malaysian Government
Government
Securities
Investment Issues
Government of
Ministry of Finance
Malaysia
Fiscal financing
3-20Y
3-15Y
3Y, 5Y, 7Y, 10Y, 15Y
3Y, 5Y, 10Y, 15Y
and 20Y
Fixed
Semi-annual
Act/Act
Issuer
Use of proceeds
Curve span
Asia
Common tenors
Coupon
Coupon frequency
Day count
Primary market
Auction day
Malaysian Treasury
Bills
Bank Negara Malaysia
Ministry of Finance
Liquidity management
Fiscal financing
Up to 1Y
3M, 6M
Zero
NA
Act/365
Monday and
Wednesday
Varies
Auction cut-off
Auction results
Auction style
Average issue size
Secondary market
Average trade size
Daily trading volume
Quotation convention
Settlement period
Bid/offer spread
Regulations
Custodian
Bank Negara Malaysia
Notes
Thursday
11:30
12:00-13:00
Multiple-price (3 decimals)
MYR 1.0-3.0bn
MYR 3.5-4.5bn
MYR 20-50mn
MYR 10-20mn
MYR 1-2bn
500mn
Price (2 decimals)
T+2
1-2bps
MYR 80-100mn
MYR 100mn
MYR 10-20mn
1-2bn
50-100mn
Discount rate (2 decimals)
T+1
5bps
Local custodian or Euroclear
Source: Bloomberg, Standard Chartered Research
Size of the government bond market is stabilising
700
600
Quarterly trading turnover – Rising again (MYR bn)
250
600
200
500
500
400
300
300
100
200
USD bn (RHS)
200
50
100
0
2001
400
150
MYR bn (LHS)
100
0
2003
2005
2007
2009
0
2004
2011
2005
2006
2007
2008
2009
Source: AsianBondsOnline
Source: AsianBondsOnline
Swaps
Floating-rate reference calculation
Main product
Average daily market volume
Average ticket size
Average bid/offer spread
Term
Liquid up to
Settlement
Coupon frequency
Convention
Floating-rate reference
Floating-rate ticker
Ticker (2Y)
2010
2011
2012
2013
KLIBOR rates on Reuters are contributed by the 12 banks
designated by BNM. The KLIBOR fixing is derived by
eliminating the highest and lowest rates and averaging the
remaining 10 rates. Calculation is done at 11:00 and the
results are displayed on the KLIBOR page on Reuters.
The floating-rate reference for the MYR IRS is 3M KLIBOR.
Interest rate swaps
MYR 500mn
MYR 50mn
2-5bps
1-10Y
1-5Y
T+0
Quarterly
Act/365
3M KLIBOR
KLIB3M Index (Bloomberg)
MRSWQO2 Index (Bloomberg)
Source: Bloomberg, Reuters, Standard Chartered Research
Source: KOFIA
56
Local Markets Compendium 2014
Malaysia
Rates
Account opening
Cash account
Euroclear or local bank
Depository account
Euroclear or local custodian
(Authorized Depository
Institution)
Trading account
Yes
Process duration
Approximately 1-2 weeks
Special requirements
None
Trade and settlement flowchart
Counterparty
2. Confirmation
3. Settlement and FX conversion instruction
4. Money wire (USD)
BNM will not record the holdings and transactions of
scripless securities issued by non-members of SSTS
Global
custodian
8. Settlement order
5. Settlement & FX conversion instruction
6. Money wire (USD)
Local
custodian
10. Debit/credit confirmation
8. Settlement order
Bank Negara
Malaysia*
9. Debit/credit request
Bank Negara
Malaysia*
7. MYR conversion
Bond A/C
Investor
MYR A/C
Investor
safe keeping
A/C
MYR A/C
Investor
Counterparty
Linked
Linked
Source: ADB, Standard Chartered Research
Regulations and taxation
Tax types
Additional notes
Foreign investment regulations Not restricted
Income tax for non-residents
None
None
Capital gains tax
None
None
Source: Bloomberg, Reuters, Standard Chartered Research
57
11. DVP
settlement
(T+2)
Investor
Counterparty
Asia
*The Real Time Electronic Transfer of Funds and
Securities (RENTAS) system is comprised of the
Interbank Fund Transfer (IFT) system, which deals
with large-value fund transfers, and the Scripless
Securities Trading System (SSTS). Securities and
funds settle gross on a delivery versus payment
basis.
1. Transaction execution
Foreign
investor
Local Markets Compendium 2014
Malaysia
Rates
Market participants
Asia
Banks
x Only Principal Dealers (consisting of 12 banks) are permitted to bid directly at primary tenders.
x Banks are not required to maintain mandatory liquid assets (under the New Liquidity Framework introduced in 1998).
x Instead, banks make projections on their assets and liabilities in a series of maturity ladders and have to maintain positive
cash flow in the ‘up to 1 week’ and ‘1-week to 1M’ maturity buckets.
x Banks are allowed to invest in longer-dated investment-grade (BBB or above) securities; thus, private debt securities feature
prominently on banks’ balance sheets.
x Banks are regulated by BNM (www.bnm.gov.my)
Provident funds
x The Employees Provident Fund (EPF) is the largest investor in the MGS market; 23% of its assets are in MGS.
x The EPF is also a significant investor in the Private Debt Securities Market.
x The Social Security Organisation (SOSCO) is another significant provident fund.
x EPF and SOSCO are regulated by the (www.treasury.gov.my)
Insurance companies
x Risk-based capital framework was introduced in 2010, requiring insurance companies to actively manage their duration gaps.
x Mortgage loans have increased as a share of life insurers’ assets, as an alternative strategy to mitigate maturity mismatches.
However, life insurers remain key sponsors of long-dated bonds.
x Insurance companies are regulated by BNM (www.bnm.gov.my)
Unit trusts
x Unit trusts (or mutual funds) have gained popularity as they have been placed by the EPF and large corporates with external
fund managers.
x Unit trusts have to disclose their NAV and are therefore subject to mark-to-market risk.
x Unit trusts are regulated by the Securities Commission (www.sc.com.my)
Foreign investors
x Foreign holdings have grown considerably to 47% of bonds outstanding (Q2-2013) from 6% in Q3-2005.
x MYR bonds are very popular with CBs and SWFs, given the high credit quality and depth of the bond market.
Source: BNM, MoF, Securities Commission, Standard Chartered Research
Ownership by participant (MYR bn)
Ownership by participant (%)
160
60
Foreigners
140
120
100
Employees
Provident
Fund
50
Employees
Provident
Fund
40
Foreigners
30
80
60
20
Banks
40
Banks
10
20
0
2006
Insurance
2007
2008
2009
2010
Insurance
Others
2011
0
2006
2012
2007
2008
2009
2010
2011
Others
2012
Source: BNM, Standard Chartered Research
Source: BNM, Standard Chartered Research
Yield curve over time – Higher (%)
Debt profile – Malaysia Government Securities (MYR bn)
40
4.5
End-2009
35
4.0
30
End-2010
2013
3.5
End-2011
3.0
25
End-2012
20
15
10
2.5
5
0
2.0
O/N
1Y
3Y
5Y
10Y
2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033
Source: Bloomberg, Standard Chartered Research
Source: Bloomberg, Standard Chartered Research
58
Local Markets Compendium 2014
Malaysia
Rates
Commercial banks – Asset growth is falling
Commercial banks – LDR is rising sharply
2.5
2.0
20
1.5
15
1.0
0.5
2006
2007
2008
2009
2010
2011
2.5
76
2.0
72
Q4-07
Q4-09
Q4-10
Q4-11
Insurance sector – Strong demand for government bonds
Cross-sectional comparison of insurance density (2012)
10K
Insurance density (USD)
78
76
Assets
(MYR bn)
74
72
70
Bond % of
assets (RHS)
68
66
2007
2008
2009
2010
CH
MT
KR
TW
MY
TH
CN
100
IN
10
ID
PHLK
VN
USHK NO
SG
AE
PT
1K
BH
OM
LT
TT
UY
SV
PK
BD
1
64
2012
2011
0
5
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
50
55
60
Source: Table 2.15 (Annual insurance statistics)
Source: Swiss Re, IMF, Standard Chartered Research
Mutual funds – Fixed income share is stable (%)
Cross-sectional comparison of mutual funds (2012)
Equities
Balanced/mixed
Fixed income
Money market
Others
Mutual fund/capita (USD)
IE
80
60
40
20
100K
AU
10K
1K
MA
100
10
DE
AE
LT
BG
RU
PA
VN JO
0
Dec-12
NO
TW
TH
CN
INID
PH
PK
SG
HK
CH US
KR
MY
1
Jun-12
5
BW
10
15
Jun-13
20 25 30 35 40 45
GDP PPP/capita (USD '000)
50
55
60
Source: Federation of Investment Managers Malaysia, Standard Chartered Research
Source: ICI, Swiss Re, IMF, Ministry of Finance, central banks
Pension funds – Government bonds’ share is falling
Cross-sectional comparison of pension funds (2012)
500
400
300
100K
40
Bond % of
assets (RHS)
35
Pension fund/capita (USD)
600
30
Investments
assets (EPF),
MYR bn
25
20
15
200
10
100
0
2002
5
2004
2006
2008
2010
65
1M
100
0
Dec-11
0.5
Q4-12
Source: BNM, Standard Chartered Research
80
1.0
0.0
Q4-08
Source: CEIC, Standard Chartered Research
180
160
140
120
100
80
60
40
20
0
2006
1.5
Government
bonds % of
assets
73
0
2013
2012
3.0
77
CH
10K
MY
NA
1K
LK TH
PH ID
CN
IN
100
BG
US
HK
SG
NO
TW AT
HU
DE
MT
CS
VN
10
IL
KR JP
FR
65
GR
UA
1
0
2012
0
Source: BNM, KWAP, Standard Chartered Research
5
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
Source: OECD, FIAP, Swiss Re, IMF, local sources including
pension fund associations, Ministry of Finance, central banks
59
50
55
60
65
Asia
0.0
2005
3.5
78
74
5
4.0
79
75
10
y/y growth
(%, RHS)
LDR (%, LHS)
80
25
Assets
(MYR tn)
4.5
81
30
Local Markets Compendium 2014
Mongolia
Eddie Cheung
Asia
General
Monetary policy framework
Monetary policy tools
Name
Policy target
Bank of Mongolia (BoM)
CPI inflation below 8% at end-2013
and in range of 5-7% for 2014-15
Independence
High, under the Law on Central Bank
1996
Policy rate
Policy rate
Bloomberg ticker
MGFXPLCY
Deciding body
Board of directors (governor, 2 deputy
governors, 10 directors, 2 outside
experts)
Policy decision-making Monetary policy committee (governor,
2 deputy governors, 3 directors,
7 outside experts)
Decision meeting
Every Thursday
frequency
Announcement time
NA
Press conference
Announcement made when there is a
policy change
Minutes published
NA
Open-market
To absorb short-term liquidity
operations (OMOs)
Quarterly inflation
NA
report
Reserve requirement
x This is used to affect money supply and provide liquidity.
x Banks must comply with the requirement, on average, over
a two-week reserve maintenance period and must hold a
minimum of 50% of the reserve requirement daily.
OMOs
x Central bank bills (CBBs): 1-week, 12-week and 28-week.
x 1-week CBB, issued every Wednesday, auctioned at a
variable rate (+/-2% of policy rate).
x 12-week CBBs (issued bi-weekly on Mondays) set
according to market demand.
x 28-week CBBs (issued every 4 weeks), auctioned at
variable rate tender with preannounced allotment volume
Standing facilities
x Intraday loan, repo and overnight facilities are available.
x Eligible securities: CBBs for intraday loans; CBBs,
government securities and MMC bonds for repo; current
account balance at BoM for overnight facility.
Non-standing facilities
x Emergency lending (up to 90 days) is available to cover
short-term liquidity shortages of a solvent bank. CBBs,
government securities, MMC bonds and performing loans
are eligible securities.
x Repo facility (up to 90 days) is available to provide liquidity
at the initiative of the BoM. CBBs and government securities
are eligible securities.
Source: BoM, Standard Chartered Research
Source: BoM, Standard Chartered Research
Exchange rate framework
Exchange rate regime
Exchange rate target
Intervention instruments
Convertible?
Deliverable?
Fixing time and place
Spot date, fixing
Fixing methodology
Floating (IMF)
No target, but BoM holds foreign exchange auctions on Tuesdays and Thursdays to limit excess
liquidity if necessary
Through spot and FX forwards and swaps
Yes
Yes
Fixed at close of business the previous day
T+2
Weighted average of previous day’s exchange rates
Source: IMF, BoM, Standard Chartered Research
Economic and financial indicators
Government balances (% of GDP)
2011
2012
2013F
2014F
17.5
12.3
14.0
11.6
7.7
15.0
11.1
9.3
-31.7
-31.3
-26.3
-21.2
3.6
3.2
3.2
3.4
Fiscal balance/GDP
-4.8
-5.2
-2.4
-1.5
Primary balance/GDP
-4.4
-4.1
-0.5
0.4
Gen. govt. debt/GDP
25.6
27.4
23.9
27
External debt/GDP
26.1
29.4
30.2
30
12.25
13.25
NA
NA
Real GDP, change
CPI inflation*
Current account/GDP
FX res./imports**
Policy rate***
S&P
Country
rating
BB-
BB-
Moody’s
B1
B1
Fitch
B+
B+
4
Fiscal balance
90
80
2
70
0
60
-2
50
General govt.
debt (RHS)
-4
40
30
-6
20
-8
10
0
-10
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013F
*Yearly average; **months of imports; ***year-end;
Source: IMF Projections, World Bank
Source: IMF
60
Local Markets Compendium 2014
Mongolia
FX
Exchange rate products
Outright forwards
NDFs
Yes
Options
FX swaps
30 – 40
Limited
1
NA
NA
On request
NA
On request, 1-way
NA
Asia
Availability
Daily trading volume
(USD mn)
Average trade size
(USD mn)
Bid/ask spread in MNT
onshore*
Bid/ask spread in MNT
offshore*
Reuters ticker
Spot
Yes
OTC
*Versus USD; for FX swaps, bid/ask spread refers to swap points vs. USD; Source: Standard Chartered Research
Exchange rate regulation – Non-residents
Underlying asset – Trade and FDI
Underlying asset – Financial asset
No underlying asset
Spot
Forwards
NDFs
Options
No restrictions
NA
No restrictions
FX swaps
NA
The Bank of Mongolia and the Mongolian Government have placed no limits on foreign transfers and have imposed no capital controls.
*Foreign currency is generally freely transferrable within or to/from Mongolia
Standard Chartered Research
Exchange rate regulation – Residents
There are no restrictions imposed on residents for MNT FX markets.
Source: Standard Chartered Research
USD-MNT – Gradual depreciation vs. USD
1,600
USD-MNT
Portfolio flows boosted BoP in 2012 (USD bn per quarter)
REER (RHS)
1,500
160
C/A
8
FDI
Portfolio
Other
6
140
4
1,400
BoP
120
2
100
0
1,300
1,200
-2
80
1,100
1,000
2000
NEER (RHS)
2002
2004
2006
2008
2010
-4
-6
60
2003
2012
Source: BIS
2004
2005
2006
2007
Source: BoM, Standard Chartered Research
61
2008
2009
2010
2011
2012
Local Markets Compendium 2014
Pakistan
Nagaraj Kulkarni | Sayem Ali
Asia
General
Monetary policy framework
Monetary policy tools
Name
Policy target
Independence
Cash reserve requirement
Cash reserve requirement: Banks are required to keep a
minimum of 4% (and a weekly average of 5%) of their cash
deposits with the SBP.
State Bank of Pakistan (SBP)
No defined inflation target
Medium, under the SBP Act 1956
(amended in 2011)
Policy rate
1-day repo
Bloomberg ticker
SBPK
Deciding body
SBP Central Board of Directors
(10 members including SBP governor)
Policy decision-making NA
Decision meeting
Every 8 weeks (6 times a year)
frequency
Announcement time
NA
Press conference
Twice a year, Feb and Aug
Minutes published
NA
Open-market
To ensure policy rate maintained,
operations (OMOs)
manage liquidity
Quarterly inflation
Released in first week of each month
report
Statutory liquidity requirement
Banks are required to keep 19% of their deposits in eligible
securities, including government bonds and T-bills.
OMOs
Bilateral repurchase operations:
x Outright purchase/sale of government securities
x Foreign exchange swaps
Standing facilities
Overnight deposit and lending facility for banks for liquidity
management in the banking sector.
Source: SBP
Source: SBP, Standard Chartered Research
Exchange rate framework
Exchange rate regime
Floating (IMF)
Exchange rate target
No target, but active FX intervention to mitigate PKR volatility
Intervention instruments
Through spot USD-PKR, FX forwards and FX swaps
Convertible?
Partially
Deliverable?
No
Fixing time and place
Spot date, fixing
15:30, Karachi
Fixing methodology
Poll by central bank of 5 interbank brokers (accredited by Financial Markets Association in
consultation with SBP)
T+2
Source: SBP, Standard Chartered Research
Economic and financial indicators^
Real GDP, change
CPI inflation*
Current account/GDP
FX res./imports**
Government balances (% of GDP)
2011
2012
2013F
2014F
0
2.4
4.4
3.6
3.5
-1
13.9
10.8
7.5
10.0
-2
0.3
-2.1
-1.0
-2.0
-3
4.4
2.4
1.4
1.1
-6.6
-8.2
-8.8
-6.8
Primary balance/GDP
-2.6
-4.2
-4.8
-2.8
Gen. govt. debt/GDP
61.7
60.3
62.1
64.1
-6
External debt/GDP
30.0
29.7
25.1
26.9
-7
Policy rate***
14.0
12.0
9.0
10.0
-8
B-
B-
S&P
Moody’s
B3
B3
Fitch
NA
NA
70
60
Fiscal balance/GDP
Country
rating
80
50
-4
-5
Fiscal balance
General govt.
debt (RHS)
20
0
-10
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013F 2014F
Source: Ministry of Finance, Government of Pakistan
62
30
10
-9
^Fiscal year starts in July; *yearly average; **months of imports; ***year-end;
Source: SBP, IMF, Standard Chartered Research
40
Local Markets Compendium 2014
Pakistan
FX
Exchange rate products
Spot
Availability
Daily trading volume
(USD mn)
Average trade size
(USD mn)
Bid/ask spread in PKR
onshore*
Bid/ask spread in PKR
offshore*
Reuters ticker
Outright forwards
Yes
150
NDFs
Options
FX swaps
Yes
25
150
2
5
NA
0.05-0.1 (all tenors)
0.1-0.2 (all tenors)
NA
NA
Asia
SCPK
*Versus USD; for FX swaps, bid/ask spread refers to swap points vs. USD; Source: Standard Chartered Research
Exchange rate regulation – Non-residents
Underlying asset – Trade and FDI
Underlying asset – Financial asset
No underlying asset
Spot
Forwards
No restrictions for FDI
No restrictions on
registered with SBP;
trade, but FDI not
others require SBP
allowed
approval for selling PKR
No restrictions
Hedging only
Not allowed
NDFs
Options
Not
allowed
NA
FX swaps
No restrictions on
trade, but FDI not
allowed
Not allowed
For more details please check the below links on the SBP website:
http://www.sbp.org.pk/fe_manual/chapters/chapter4.htm, http://www.sbp.org.pk/fe_manual/chapters/chapter10.htm, http://www.sbp.org.pk/fe_manual/chapters/chapter20.htm,
http://sbp.org.pk/epd/2011/FEC2.htm, http://www.sbp.org.pk/epd/2011/FEC7.htm
Exchange rate regulation – Residents
x Resident exporters have to sell their foreign-currency proceeds within three working days of receipt.
x Exporters can buy forwards to hedge up to 6.5 months from the last date of shipment. The hedging facility is not available in
the case of oil and oil-product imports.
Source: SBP, Standard Chartered Research
Market participants
Corporates
Real-money
funds
Hedge funds
Interbank
49% x
x
1% x
x
0% x
50% x
x
Exporters and importers usually access the USD-PKR spot market.
Their activity in forwards is limited owing to trend PKR depreciation and restrictions on import hedging.
Real-money funds have very little direct exposure to the FX market.
They can access forwards to hedge their exposure to PKR through their bond positions.
NA
Interbank participants are quite active in both spot and FX swaps.
The forward market is thin and outright forwards are rarely quoted in the interbank market.
Source: Standard Chartered Research
PKR REER and NEER – Trend NEER depreciation
BoP is deteriorating (USD bn)
REER
110
100
90
80
70
60
50
Jul-01
NEER
Jul-03
Jul-05
Jul-07
Jul-09
Jul-11
C/A
5
4
3
2
1
0
-1
-2
-3
-4
-5
120
Source: SBP website
Source: SBP
63
Portfolio
Other
BoP
2005
Jul-13
FDI
2006
2007
2008
2009
2010
2011
2012
2013
Local Markets Compendium 2014
Pakistan
Rates
Bonds
Asia
PIBs
Issuer
Use of proceeds
Curve span
Common tenors
Coupon
Coupon frequency
Day count
Primary market
Financing of fiscal deficit
3Y to 20Y
3Y, 5Y, 7Y, 10Y
Fixed
Semi-annual
Act/Act
Auction day
As per calendar (usually
Wednesday)
Auction cut-off
Auction results
Auction style
Average issue size
Secondary market
Average trade size
Daily trading volume
Quotation convention
Settlement period
Bid/offer spread
Regulations
Custodian
Market Treasury Bills (MTBs)
Government of Pakistan
Cash management
Financing of fiscal deficit
3M, 6M, 12M
3Y
Zero
NA
Ijara sukuk bonds
Floating linked to 6M T-bill rate
Semi-annual
Act/365
Wednesday
Usually Wednesday
PKR 1-8bn
11:30
No specific time
Multiple-price
PKR 2-15bn
NA
PKR 50-100mn
200mn
PKR 150-500mn
1bn
PKR 50-100mn
NA
Price
T+0
PKR 0.25
Yield
T+1
5-15bps
10-15bps
Local custodian
Source: Bloomberg, Standard Chartered Research
Government bond market is growing
Quarterly trading turnover ratio – Turnover improving
1.4
14
0.7
1.2
12
0.6
1.0
0.5
10
0.4
0.8
8
0.6
0.3
USD bn (RHS)
6
0.4
0.2
0.0
2006
PKR tn (LHS)
2007
2008
2009
2010
2011
2012
0.2
4
0.1
2
0.0
2006
2013
2007
2008
2009
Source: SBP, Standard Chartered Research
Source: SBP, Standard Chartered Research
Composition of domestic marketable securities
outstanding (PKR tn)
Composition of debt (PKR tn)
9
3.5
2011
2012
Local-currency
debt
8
MTBs
3.0
7
2.5
6
2.0
5
PIBs
1.5
Foreigncurrency debt
4
1.0
3
0.5
0.0
2007
2010
2
Ijara Sukuk
2008
2009
2010
2011
2012
1
2003
2013
Source: MoF, Standard Chartered Research
2004
2005
2006
2007
Source: MoF, Standard Chartered Research:
64
2008
2009
2010
2011
2012
Local Markets Compendium 2014
Pakistan
Rates
Account opening
Cash account
Local bank
Depository account
Trading account
At the Central Depository
Yes
Company of Pakistan (subaccounts are not recognised)
and with a local sub-custodian
Process duration
Approximately 1-2 weeks
Special requirements
Investors need to obtain a Unique Identification Number (UIN) from the National Clearing Company of Pakistan Limited to
open an account at the Central Depository Company of Pakistan. Documents required for the UIN:
x Certificate of Incorporation and Memorandum & Articles of Association
Asia
x Original Power of Attorney, account opening form and appointment of tax agent
Trade and settlement flowchart
Local custodian
Investor’s
account
3. Settlement instruction
4. Money wire and FX &
transfer instruction
Local bank
FX conversion
Investor
FCY A/C
1. Transaction execution
Foreign
investor
Settlement and clearing
Counterparty
2. Confirmation
Investor
SCRA A/C
CDC - IPS account
Bond A/C
Investor
5. Trading report
Counterparty
6. DVP settlement
(TD, T+1)
SBP – PRISM system
SCRA: Special Convertible Rupee Account
CDC: Central Depository Company of Pakistan
IPS: Investor Portfolio Services
SBP: State Bank of Pakistan
PRISM: Pakistan Real-time Interbank Settlement Mechanism (RTGS)
Cash A/C
Investor
Counterparty
Source: SBP, BBH Worldview Standard Chartered Research
Regulations and taxation
Tax types
Additional notes
Foreign investment regulations Not restricted
All investments have to be done through a Special Convertible
Rupee Account (SCRA) and as per the process defined in the
Foreign Exchange Manual
Income tax for non-residents
Exempt
Capital gains tax
No
Source: Standard Chartered Research
65
Local Markets Compendium 2014
Pakistan
Rates
Market participants
Asia
Scheduled commercial banks
x Scheduled commercial banks have to maintain 19% of their net demand and time liabilities in cash, gold or other approved
securities (MTBs, TFCs of quasi-government companies, and National Investment Trust units).
x They are the dominant players in the primary and secondary markets for government securities. They are the largest
investors in government securities, holding c.39% of outstanding domestic government debt as of April 2013.
x Regulated by the SBP (http://www.sbp.org.pk)
Primary dealers (PDs)
x PDs are market-makers for government securities in underwriting primary issuance and the secondary market, and ensuring
participation in the non-competitive bidding process.
x Commercial banks and other financial institutions interested in participating in the auction have to do so via a designated PD.
x PDs can charge maximum bid/offer spreads of 15bps for on-the-run PIBs up to 10Y, and 25bps for on-the-run MTBs.
x Regulated by the SBP (http://www.sbp.org.pk)
Others
x Other investors in Pakistan’s bond markets are development financial institutions (DFIs), employee benefit funds and
insurance companies.
x FIIs can also invest in PIBs and MTBs, but in the non-competitive segment. There is no upper limit on investments.
x FII investment in government securities is regulated by the SBP (http://www.sbp.org.pk)
Source: SBP, Standard Chartered Research
Ownership of government bonds by participant (PKR tn)
4.0
Ownership by participant (%)
50
Commercial
banks
3.5
NSS (National
Savings)
40
3.0
2.5
30
NSS (National
Savings)
2.0
SBP
1.5
1.0
Others
0.5
0.0
2006
2007
2008
2009
2010
Commercial
banks
2011
20
SBP
10
Others
0
2006
2012
2007
2008
2009
2010
2011
2012
Source: SBP, Standard Chartered Research
Source: SBP, Standard Chartered Research
Yield curve has steepened over time (%)
Debt profile – Pakistan investment bonds (PKR bn)
15
160
End-2010
140
14
End-2011
13
12
11
120
End-2009
100
End-2012
80
2013
10
60
9
40
8
20
0
7
O/N 6M 1Y
2Y
5Y
10Y
2013
Source: Bloomberg
2016
2019
2022
2025
Source: MoF, Standard Chartered Research
66
2028
2031
2034
2037
2040
Local Markets Compendium 2014
Pakistan
Rates
Commercial banks – Asset growth is rising
Commercial banks – LDR is stabilising
18
16
14
Assets
(PKR tn)
12
60
80
50
70
40
60
8
6
20
0
2
2006
2007
2008
2009
2010
-10
2012
2011
5
10
0
Q2-07
0
Q2-08
Q2-09
Q2-10
Q2-11
Q2-12
Source: SBP, Standard Chartered Research
Source: SBP, Standard Chartered Research
Insurance sector – Strong demand for bonds
Cross-sectional comparison of insurance density (2012)
600
10K
83
Asset
(PKR bn)
Insurance density (USD)
700
82
500
81
400
80
300
79
200
78
Bond % of
asset (RHS)*
100
CH
MT
KR
TW
MY
TH
CN
100
IN
10
ID
PHLK
VN
BH
OM
LT
TT
UY
SV
PK
77
SG
AE
PT
1K
USHK NO
BD
1
0
76
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
0
5
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
50
55
60
*For 2012 it is an estimate; Source: Standard Chartered Research
Source: Swiss Re, IMF, Standard Chartered Research
Mutual funds – Fixed income funds are rising (PKR bn)
Cross-sectional comparison of mutual funds (2012)
400
Equity
Others
Income
Money Market
Others
1M
Mutual fund/capita (USD)
IE
300
200
100
0
2003
100K
AU
10K
1K
100
INID
2005
2006
2007
2008
2009
2010
2011
PK
10
DE
AE
LT
BG
RU
PA
VN JO
0
2012
PH
NO
TW
TH
CN
MA
SG
HK
CH US
KR
MY
1
2004
5
BW
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
50
55
60
Source: MUFAP
Source: ICI, Swiss Re, IMF, Ministry of Finance, central banks
DFI’s investment in government securities
Cross-sectional comparison of pension funds (2012)
80
70
Liquid assets
% of assets
(RHS)
45
100K
40
10K
35
60
30
50
25
Investments,
PKR bn
40
30
20
15
20
10
10
5
0
2007
Pension fund/capita (USD)
90
2009
2010
2011
CH
NA
PH IDLK TH BG
CN
IN
CS
VN
UA
100
10
Source: SBP, OECD, Standard Chartered Research
HK
SG
NO
TW AT
HU
DE
MT
GR
PK
5
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
Source: OECD, FIAP, Swiss Re, IMF, local sources including
pension fund associations, Ministry of Finance, central banks
67
US
65
1
0
2012
IL
KR JP
FR
MY
1K
0.1
0
2008
65
50
55
60
65
Asia
0
2005
Government
bonds % of
assets (RHS)
30
10
4
10
40
20
y/y growth
(%, RHS)
15
50
30
10
20
LDR (%)
Local Markets Compendium 2014
Philippines
Danny Suwanapruti | Eddie Cheung | Robert Minikin | Jeff Ng
Asia
General
Monetary policy framework
Monetary policy tools
Name
Policy target
Reserve requirement
Required ratio: Reserves of 18% on deposit with BSP
Bangko Sentral ng Pilipinas (BSP)
CPI inflation 2014: 3-5% y/y, 2015:
2-4% y/y
Independence
High, under the New Central Bank Act
of 1993
Policy rate
Overnight borrowing rate
Bloomberg ticker
PPCBBLR Index
Deciding body
The Monetary Board (6 BSP officials
and 1 member from the cabinet)
Policy decision-making One man, one vote
Decision meeting
Every 6 weeks (8 times a year)
frequency
Announcement time
16:00 Manila time
Press conference
16:30
Minutes published
4 weeks later
Open-market
To achieve the CPI inflation target by
operations (OMOs)
controlling the money supply
Quarterly inflation
1st week of Feb, May, Aug, Nov
report
OMOs
x Repurchase and reverse repurchase of government
securities
x Outright transactions of government securities from/to
banking institutions
x Foreign exchange swaps
Special Deposit Accounts (SDA)
x Fixed-term deposits with BSP by banks and by trust entities
of banks and non-bank financial institutions
x BSP changed rules in 2013, so foreign and retail cannot
park funds in SDA
Standing facilities
x Rediscounting facility, which allows a financial institution to
borrow money from BSP using promissory notes and other
loan paper from its borrowers as collateral.
x There are two types of rediscounting facilities available to
qualified banks: the PHP rediscounting facility and the
Exporters’ Dollar and Yen Rediscount Facility (EDYRF).
Source: BSP, Standard Chartered Research
Source: BSP, Standard Chartered Research
Exchange rate framework
Exchange rate regime
Floating (IMF)
Exchange rate target
No target, but BSP frequently intervenes to mitigate PHP volatility
Intervention instruments
Through spot USD-PHP and sell/buy FX swaps onshore
Convertible?
Partially
Deliverable?
No
Fixing time and place
Spot date, fixing
11:30, Manila
Fixing methodology
USD-PHP fix is derived from a weighted average of all trades done between 09:00-11:30
Spot date is T+1, fixing 1 day prior to settlement
Source: IMF, BSP, Standard Chartered Research
Economic and financial indicators
Government balances (% of GDP)
2011
2012
2013F
2014F
0.0
80
Real GDP, change
3.6
6.8
7.2
6.7
-0.5
70
CPI inflation*
4.8
3.1
2.9
3.9
Current account/GDP
3.1
2.8
4.3
3.6
-1.0
60
FX res./imports**
14.1
13.8
14.2
14.4
-1.5
Fiscal balance/GDP
-2.0
-2.3
-1.8
-1.6
Primary balance/GDP
0.8
0.6
0.6
0.5
Gen. govt. debt/GDP
50.9
51.4
48.9
46.6
External debt/GDP
34.2
32.3
31.7
30.5
Policy rate***
4.25
3.50
3.50
4.00
BB
BB+
S&P
Country
rating
Moody’s
Ba2
Ba1
Fitch
BB+
BB+
-2.0
50
General govt.
debt (RHS)
40
Fiscal balance
-2.5
-3.0
20
-3.5
10
0
-4.0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013F 2014F
*Yearly average; **months of imports; ***year-end;
Source: Moody’s, CEIC, Standard Chartered Research
Source: Moody’s, CEIC, Standard Chartered Research
68
30
Local Markets Compendium 2014
Philippines
FX
Exchange rate products
Outright forwards
NDFs
Yes
Options
FX swaps
2,249
2,396
900-1,000
687
1,188
5-10
20
5-10
1
1M 0.03, 3M 0.06,
6M 0.15, 12M 0.40
0.02
1M 0.01, 3M 0.04,
6M 0.13, 12M 0.38
NA
1M 0.02, 3M 0.03,
6M 0.05, 12M 0.07
NA
NA
SCML
0.8-1 vol for
all tenors
OTC
NA
SCML
*Versus USD; for FX swaps, bid/ask spread refers to swap points vs. USD; Source: BIS, Triennial Central Bank Survey, December 2010, Standard Chartered Research
Exchange rate regulation – Non-residents
Spot
Underlying asset – Trade and FDI
Underlying asset – Financial asset
No underlying asset
Forwards
NDFs*
Options**
FX swaps
Buy/Sell: Trade
Buy: No restrictions, Sell: Trade documents needed
documents needed
Buy/Sell: BSRD
Buy: No restrictions, Sell: BSRD needed
No restrictions
needed
Buy: No restrictions, Sell: Not
Not allowed
Not allowed
allowed
Buy refers to non-residents (NR) buying PHP, whereas Sell refers to NR selling PHP. For investment-related transactions a BSRD is required to sell PHP spot and forwards.
*Restrictions on NDFs refer to NRs engaging in NDFs with onshore banks. **This refers to the offshore PHP option markets.
Outstanding aggregate NDFs by onshore banks are limited to a 20% of their onshore capital. (BSP Circular 790)
For more details see the BSP website at www.bsp.gov.ph/ including the following links: www.bsp.gov.ph/downloads/Regulations/MORFXT/MORFXT.pdf, and
http://www.bsp.gov.ph/downloads/regulations/attachments/2011/c741.pdf.
Source: BSP Circular no. 790. Series of 2013 for onshore handling of NDFs
Exchange rate regulation – Residents
x Residents wanting to buy more than USD 120,000 of FX per day for non-trade C/A purposes need to submit relevant documents.
x Residents wanting to buy more than USD 60mn of FX per year for outward investment purposes need BSP approval.
Source: BSP, including the following link: http://www.bsp.gov.ph/downloads/regulations/attachments/2010/c698.pdf
Market participants
Corporates
Real-money
funds
Hedge funds
Interbank
15% x
x
15% x
x
15% x
x
55% x
x
Corporate flows constitute a small part of the PHP FX market given the small trade deficit.
Corporates typically trade in spot, and outright forwards constitute the remainder.
Foreign RMFs and a few CBs/SWFs have become increasingly involved in PHP and PHP bonds.
They typically leave their PHP exposure unhedged given trend PHP appreciation.
Hedge funds typically trade in the offshore NDFs, as they need an underlying asset to buy back USD.
Hedge funds’ share of the FX market may decline due to government efforts to curtail onshore NDFs.
Interbank flows constitute the largest share of the FX market.
At the peak of the OFW remittance season in Q2 and Q4, interbank flows are less significant.
Source: Standard Chartered Research
PHP REER and NEER – REER reaching pre-crisis levels
The C/A surplus is solid (USD bn per quarter)
130
10
120
C/A
FDI
Portfolio
Other
8
REER
BoP
110
6
100
4
90
2
80
0
70
60
50
1994
-2
NEER
-4
1997
2000
2003
2006
2009
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
2012
Source: BIS
Source: IMF
69
Asia
Availability
Daily trading volume
(USD mn)
Average trade size
(USD mn)
Bid/ask spread in PHP
onshore*
Bid/ask spread in PHP
offshore*
Reuters ticker
Spot
Local Markets Compendium 2014
Philippines
Rates
Bonds
Asia
T-bills
Issuer
Use of proceeds
Curve span
Common tenors
Coupon
Coupon frequency
Day count
Primary market
Auction day
Auction cut-off
Auction results
T-bonds
Retail Treasury Bonds
Bureau of the Treasury
Fiscal financing
2Y-30Y
3Y-25Y
5Y, 15Y, 20Y
10-25Y
Fixed
Semi-annual
Quarterly
30/360
3M, 6M and 1Y
Zero
NA
2nd Monday of month
4th Tuesday of month
NA
12:00
Over a one-week period
13:30-14:00
NA
Multiple-price
Single for new, multiple
Single-price
(3 decimals)
for reopening
PHP 20-30bn
PHP 10-15bn
PHP 100-150bn
Auction style
Average issue size
Secondary market
Average trade size
Daily trading volume
Quotation convention
Settlement period
Bid/offer spread
Regulations
Custodian
PHP 50-100mn
PHP 100-200mn
PHP 100-200mn
PHP 8-10bn
PHP 2-3bn
Yield (3 decimals)
Yield (4 decimals)
T+2 (primary), T+1 (secondary)
T+1
10-15bps
5-10bps
Global Peso Bond
10-25Y
10Y, 25Y
Semi-annual
Syndication
NA
Multiple-price
(3 decimals)
USD 1-1.25bn
USD 5mn
USD 5-20mn
Price (4 decimals)
T+2
Local custodian
Euroclear
Source: Bloomberg, Standard Chartered Research
Steady rise in the government bond market
Quarterly trading turnover ratio – Rising
4.0
90
1.4
3.5
80
1.2
70
1.0
60
0.8
50
0.6
40
0.4
30
0.2
20
0.0
2005
3.0
2.5
PHP tn (LHS)
2.0
USD bn (RHS)
1.5
1.0
2001
2003
2005
2007
2009
2011
2006
2007
2008
2009
2010
Source: AsianBondsOnline
Source: AsianBondsOnline
Swaps
Floating-rate reference calculation
Main product
Average daily market volume
Average ticket size
Average bid/offer spread
Term
Liquid up to
Settlement
Coupon frequency
Convention
Floating-rate reference
Floating-rate ticker
Ticker (2Y)
Interest rate swaps
PHP 100-150mn
PHP 50-100mn
30-40bps
1-10Y
1-5Y
T+1
Quarterly
Act/360
3M PHIREF
PREF3MO Index
PPSWO2 Index
2011
2012
2013
The Philippines Interbank Reference Rate (PHIREF) is
derived from USD SIBOR and USD-PHP spot and forward
rates*. PHIREF represents the implied cost of borrowing PHP
by lending USD for the same tenor. There are two fixings per
day, at 11:30 and 16:00. The morning fixing is used for IRS.
Formula:
‫ݏݐ݊݅݋݌݌ܽݓݏ‬
͵͸Ͳ
൤൬
൰ ൈ ൬ܵ‫ ܴܱܤܫ‬൅
൰൨ ൅ ܵ‫ܴܱܤܫ‬
‫݁ݐܽݎݐ݋݌ݏ‬
݀ܽ‫ݏݕ‬
Source: Bloomberg, Reuters, Standard Chartered Research
*As and when USD SIBOR is discontinued, USD LIBOR may be considered.
Source: Bloomberg, Reuters, Standard Chartered Research
70
Local Markets Compendium 2014
Philippines
Rates
Account opening
Cash account
Local bank
Special requirements
None
Depository account
Local custodian
Trading account
Yes
Process duration
Approximately 1-2 weeks
Trade and settlement flowchart
RoSS: Registry of Scripless Securities system
BSP: The Bangko Sentral ng Pilipinas
PhilpaSS: Philippine Payments and Settlements
System (RTGS)
1. Transaction execution
Counterparty
2. Confirmation
3. Settlement and FX Conversion Instruction
4. Money Wire (USD)
Local
Custodian
6. Settlement Order
8. Debit/Credit Confirmation
Bureau of
the Treasury
RoSS
6. Settlement Order
7. Debit/Credit Request
BSP
PhilpaSS
5. PHP Conversion
Bond A/C
Investor
PHP A/C
Investor
Safe Keeping
A/C
PHP A/C
Investor
Counterparty
Linked
Linked
Source: AsiaBondsOnline, Standard Chartered Research
Regulations and taxation
Tax types
Additional notes
Foreign investment regulations Not restricted
Income tax for non-residents
20% for non-residents
Capital gains tax
None for non-residents
Source: Bloomberg, Reuters, Standard Chartered Research
71
9. DVP
Settlement
(T+1)
Investor
Counterparty
Asia
Foreign
Investor
Local Markets Compendium 2014
Philippines
Rates
Market participants
Asia
Banks
x Banks have to retain 21% of total deposits as reserve requirement (10% in cash and 11% in Reserve Deposit Account).
x Reserve requirements for smaller banks such as thrift banks, rural banks and co-operative banks are typically lower.
x SDA is a term deposit with BSP (typically 3M), and the interest paid is 91-day T-bill minus 50bps.
x BSP pays 4% interest (for up to 40% of the cash amount) for cash reserves placed with the central bank.
x Banks do not need to hold bonds as part of reserves but are active in bonds, as loan-to-deposit ratios are very low.
x Consumer credit growth is sluggish due to lack of credit history. Hence, banks buy bonds to expand their asset base.
x Banks generally buy liquid issues (5Y, 7Y, 10Y and 20Y) and target jumbo issues (>PHP 100bn).
x Banks are regulated by BSP (www.bsp.gov.ph)
Tax-exempt institutions
x This group includes government-owned and -controlled corporations (GOCCs), pension funds and retirement funds.
x Most retirement funds are managed by trusts or insurance companies.
x There is a tax-exempt window (OTC facility) with the Bureau of the Treasury through which TEIs are able to purchase taxexempt government securities.
x A non-tax-exempt investor is subject to a 20% withholding tax on the coupon.
x TEIs can buy the same security on a tax-exempt basis, but the coupon is discounted by 10%.
Insurance companies
x Insurance companies are expected to keep 25% of their minimum paid-up capital in government (or quasi-sovereign) bonds.
x Assets are classified as ‘admitted assets’ and further categorised into ‘reserve assets’ and ‘surplus assets’.
x Reserve assets are accepted by the Insurance Commission to match liabilities on policy reserves; surplus assets are not.
x Insurance companies are regulated by the Insurance Commission (IC) (www.insurance.gov.ph)
Foreign investors
x There are no official figures on foreign holdings of local bonds, but we estimate them at around 15% of the total outstanding.
x Foreign interest has picked up significantly as global RMFs, CBs and SWFs become more attracted to PHP bonds.
x The Global Peso Note (USD-settled instrument linked to the PHP) is an alternative asset for foreign investors.
x There are currently three tenors: 8Y (2021), 9Y (2022) and 23Y (2036)
x GPN tracks local paper but not highly correlated. Has lost popularity due to illiquidity, which has been very apparent this year.
Source: Standard Chartered Research
Ownership by participant (PHP tn)
Ownership by participant (%)
1.2
50
Banks
1.0
40
Others
0.8
Banks
30
0.6
Tax-exempt
institutions
0.4
0.2
0.0
2006
Foreigners*
Private
corporations
Tax-exempt
institutions
20
Insurance
2008
2009
2010
2011
0
2006
NBFI
2012
Foreigners*
Private
corporations
10
GOCC
2007
Others
2007
2008
2009
Insurance
GOCC
2010
2011
NBFI
2012
*Foreign holdings are approximated from custody holdings data, Source: Bureau of Treasury,
Standard Chartered Research
*Foreign holdings are approximated from custody holdings data, Source: Bureau of the
Treasury, Standard Chartered Research
Yield curve over time – Moving lower (%)
Debt profile (PHP bn)
400
9
End-2009
8
7
350
300
End-2010
6
250
End-2011
5
4
3
200
End-2012
150
2013
100
50
2
0
1
O/N
2Y
5Y
10Y
2013
Source: Bloomberg, Standard Chartered Research
2016
2019
2022
2025
Source: Bloomberg, Standard Chartered Research
72
2028
2031
2034
2037
Local Markets Compendium 2014
Philippines
Rates
Commercial banks – Asset growth is rebounding
Commercial banks – Loan-to-deposit ratio is stable (%)
74
20
9
8
72
Assets
(PHP tn)
7
70
15
6
68
5
66
10
4
y/y growth
(%, RHS)
3
64
62
5
2
60
1
58
Q4-06
0
2005
2006
2007
2008
2009
2010
2011
2012
Q4-07
Q4-08
Q4-09
Q4-10
Q4-11
Q4-12
Source: BSP, Standard Chartered Research
Source: BSP, Standard Chartered Research
Insurance sector – Asset size (PHP bn)
Cross-sectional comparison of insurance density (2012)
10K
Insurance density (USD)
700
650
600
550
500
CH
MT
KR
TW
MY
TH
CN
100
IN
ID
PH
10
VN
PK SV
BD
USHK NO
SG
AE
PT
1K
Asia
0
2004
BH
OM
LT
TT
LK
UY
450
1
400
2006
0
2007
2008
2009
2010
Source: CEIC, Standard Chartered Research
Equities
Balanced/mixed
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
50
Fixed income
Money market
Mutual fund/capita (USD)
100
50
100K
AU
10K
MA
100
10
2009
2010
2011
NO
DE
AE
LT
BG
RU
PA
PK
VN JO
0
CH US
TW
TH
CN
INID
PH
SG
HK
KR
MY
1K
1
5
BW
10
15
2012
20 25 30 35 40 45
GDP PPP/capita (USD '000)
50
55
60
Source: Investment Company Institute
Source: ICI, Swiss Re, IMF, Ministry of Finance, central banks
Tax-exempt institutions – Steady growth in asset size of
pension funds
Cross-sectional comparison of pension funds (2012)
Bond % of
asset (RHS)
400
35
350
30
300
25
250
Asset size
(PHP bn)
200
20
15
150
100
10
50
5
0
2000
100K
40
Pension fund/capita (USD)
450
2004
2006
2008
2010
CH
10K
MY
NA
1K
100
LK TH
PH CN
ID
IN
BG
US
HK
SG
NO
TW AT
HU
DE
MT
CS
VN
10
IL
KR JP
FR
65
GR
UA
1
0
2002
65
1M
150
2008
60
Cross-sectional comparison of mutual funds (2012)
Others
IE
0
2007
55
Source: Swiss Re, IMF, Standard Chartered Research
Mutual funds – Fixed income funds dominate (PHP bn)
200
5
2011
0
2012
Source: BTr, SSS, Standard Chartered Research
5
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
Source: OECD, FIAP, Swiss Re, IMF, local sources including
pension fund associations, Ministry of Finance, central banks
73
50
55
60
65
Local Markets Compendium 2014
Singapore
Jennifer Kusuma | Thomas Harr | Edward Lee | Jeff Ng
Asia
General
Monetary policy framework
Monetary policy tools
Name
Policy target
Independence
Policy rate
Bloomberg ticker
Deciding body
Policy decision-making
Decision meeting
frequency
Announcement time
Press conference
Minutes published
Reserve requirement
x Minimum cash balance of 3% of bank’s liability base
x Minimum liquid asset (MLA) requirement, which can vary
from bank to bank. The MLA can be 10-15% for a bank that
is approved to comply with a bank-specific framework.
Open-market
operations (OMOs)
Quarterly inflation
report
Monetary Authority of Singapore (MAS)
Non-inflationary economic growth
Medium
NA; management of SGD NEER
SNEER
NA
NA
Twice a year (April and October)
OMOs
x Issuance of MAS bills
x Clean borrowing, repo and FX swaps
x Repo transactions are used less frequently, with FX swaps
being the dominant instrument.
08:00 Singapore time
NA
Monetary Policy Statement at
announcement, no minutes
To ensure policy target maintained,
manage liquidity
Monthly inflation report
Lending and deposit facilities
x Intraday cash borrowing on a collateralised basis is available.
x Standing facility to lend or borrow overnight from the MAS at
a clean borrowing rate of +/-50bps, with a floor of 0%.
x Enhanced repo facility through which the MAS can lend a
specific SGS to Primary Dealers via a reverse repo
transaction and simultaneously conduct a back-to-back
general collateral repo to minimise cash exchange.
Source: MAS, Standard Chartered Research
Source: MAS, Standard Chartered Research
Exchange rate framework
Exchange rate regime
Other managed arrangement (IMF)
Exchange rate target
The MAS targets the SGD NEER, which is allowed to fluctuate within an undisclosed policy
band. The slope, centre and width of the band reflect the MAS’ monetary policy stance.
Intervention instruments
Through spot USD-SGD and sell/buy FX swaps, both onshore and offshore
Convertible?
Yes
Deliverable?
Yes
Fixing time and place
Spot date, fixing
11:30, Singapore
Fixing methodology
Volume-weighted average price of actual internal spot transactions between 10:30-11:00
T+2, fixing 2 days prior to settlement
Source: IMF, MAS, Standard Chartered Research
Economic and financial indicators
2011
Real GDP, change
CPI inflation*
5.3
Government balances (% of GDP)*
2012
1.3
2013F
2.6
4.8
5.1
4.6
2.5
3.5
21.9
18.6
17.0
19.0
FX res./imports**
7.8
7.5
7.4
7.6
Fiscal balance/GDP
1.2
1.1
0.8
0.6
Primary balance/GDP
1.2
1.1
0.8
0.6
Gen. govt. debt/GDP
42.7
42.1
41.2
40.3
0.0
0.0
0.0
0.0
K
K
K
K
AAAu
AAAu
Moody’s
AAA
AAA
Fitch
AAA
AAA
Current account/GDP
External debt/GDP
Policy rate***
S&P
Country
rating
3.0
2014F
2.5
50
General govt.
debt (RHS)
45
40
2.0
35
30
1.5
Fiscal balance
1.0
25
20
15
0.5
10
0.0
5
-0.5
0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013F 2014F
*Yearly average; **months of imports, ***year-end, Note: K refers to an FX appreciation
stance; Source: Moody’s, CEIC, Standard Chartered Research
*Singapore does not incur any debt for fiscal financing; Sources: Moody’s, CEIC,
Standard Chartered Research
74
Local Markets Compendium 2014
Singapore
FX
Exchange rate products
Spot
Availability
Daily trading volume
(USD mn)
Average trade size
(USD mn)
Bid/ask spread in SGD
onshore*
Outright forwards
Yes
20,000
NDFs
Options
Yes
11,000
3,000
41,000
5
50
NA
1M 0.00002,
3M 0.00005,
6M 0.0001,
9M 0.0004, 1Y 0.0005
0.5-0.6 vol for all
tenors
NA
NA
ABSFIX01
OTC
ABSFIX01
*Versus USD; for FX swaps, bid/ask spread refers to swap points vs. USD; Source: BIS, Triennial Central Bank Survey, September 2013
Exchange rate regulation – Non-residents
Spot
Underlying asset – Trade and FDI
Underlying asset – Financial asset
No underlying asset
Forwards
No restrictions
NDFs
Options
NA
FX swaps
No restrictions
Onshore banks may lend up to SGD 5mn per entity to non-resident (NR) financial institutions. NRs must convert proceeds from onshore financing activities to foreign currency if the funds are to
be used offshore.
For more details, see the following link at the MAS website: http://www.mas.gov.sg/legislation_guidelines/banks/notices/Notice_757__Internationalisation_of_the_Singapore_Dollar__S.html
Exchange rate regulation – Residents
There are no restrictions imposed on residents for SGD spot, forwards, FX swaps and options.
Source: MAS, Standard Chartered Research
Market participants
Corporates
Real-money
funds
Hedge funds
Interbank
25% x Local corporates are net buyers of SGD given Singapore’s large trade surplus, trend SGD
appreciation; they typically hedge in the 1-3M tenors.
x MNCs typically have two-way interest due to working-capital needs offshore.
30% x Real-money funds have substantially reduced SGD exposure, according to our transaction flows data
x CBs and SWFs are increasingly involved in the SGD given Singapore’s strong credit outlook.
20% x Hedge funds typically trade the SGD versus a simplified SGD NEER basket out to the 1M tenor.
x In addition, they often use the SGD to express an AXJ view given the SGD NEER basket.
25% x Interbank players are typically very short-term and will trade from both sides.
x In addition, they typically use SGD to hedge AXJ risks, especially in MYR.
Source: Standard Chartered Research
Trading in the strong half
The BoP supports trend SGD appreciation
The Standard Chartered SGD NEER model
SGD bn per quarter
60
130
C/A
FDI
Top band
125
Portfolio
Other
BoP
40
120
115
Standard SGD
NEER
110
20
Bottom band
Middle band
0
105
-20
100
-40
95
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: Bloomberg, Reuters, Standard Chartered Research
Source: Government statistics department, CEIC
75
Asia
1M 0.0002,
3M 0.00025,
6M 0.0003,
9M 0.0005,
1Y 0.0007
0.0002
Bid/ask spread in SGD
offshore*
Reuters ticker
FX swaps
Local Markets Compendium 2014
Singapore
Rates
Asia
Bonds
Issuer
Use of proceeds
Curve span
Common tenors
Coupon
Coupon frequency
Day count
Primary market
Auction day
Auction cut-off
Auction results
Auction style
Average issue size
Secondary market
Average trade size
Daily trading volume
Quotation convention
Settlement period
Bid/offer spread
Regulations
Custodian
Singapore Government
SGS T-bills
Securities
Singapore government
Market development
Up to 30Y
3M-1Y
2Y, 5Y, 7Y, 10Y, 15Y and 20Y
3M, 6M, 1Y
Fixed
Semi-annual
Act/Act
Varies (towards month-end)
MAS bills
Monetary Authority of Singapore
Liquidity management
Up to 3M
4-, 6-, 8-week, up to 3M
Zero
NA
Act/365
Monday
12:00
13:00
Single-price
SGD 2.3-3.7bn
SGD 1.2-3bn
Monday and Thursday
SGD 1-2.2bn
SGD 5-10mn
SGD 300-700mn
Price
SGD 5mn
SGD 100mn
SGD 150mn
Yield
T+1
1-3bps
MAS, banks
Source: Bloomberg, Standard Chartered Research
Steady rise in the government bond market
200
150
100
SGD bn (LHS)
USD bn (RHS)
50
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Quarterly trading turnover ratio – Falling
160
1.2
140
1.1
120
1.0
100
0.9
80
0.8
60
0.7
40
0.6
20
0.5
0
0.4
2005
2006
2007
2008
2009
2010
Source: AsianBondsOnline
Source: AsianBondsOnline
Swaps
Floating-rate reference calculation
Main product
Average daily market volume
Average ticket size
Average bid/offer spread
Term
Liquid up to
Settlement
Coupon frequency
Convention
Floating-rate reference
Floating-rate ticker
Ticker (2Y)
Interest rate swaps
SGD 500mn
SGD 10-50mn
3-15bps
1-30Y
1-10Y
T+1
Semi-annual
Act/365
6M SOR
SORF6M Index (Bloomberg)
SDSW2 Index (Bloomberg)
2011
2012
2013
The floating-rate reference for SGD IRS is 6M SGD SOR.
Starting in 2013, the SGD SOR is calculated from market
levels of USD SIBOR and FX swap points instead of bank
contributions*. The FX swap points are estimated as the
volume-weighted average price of actual interbank USD-SGD
spot transactions.
Formula:
൜൤൬ͳ ൅ Source: Bloomberg, Reuters, Standard Chartered Research
݂‫݀ݓ‬
݀ܽ‫ݏݕ‬
͵͸ͷ
൰ ൈ ൬ͳ ൅ ܷܵ‫ ܴܱܤܫܮܦ‬ൈ ൰ െ ͳ൨ ൈ ൠ ൈ ͳͲͲ
‫ݐ݋݌ݏ‬
͵͸Ͳ
݀ܽ‫ݏݕ‬
* USD LIBOR will replace USD SIBOR on 31 December 2013. Source: Bloomberg,
Standard Chartered Research
76
Local Markets Compendium 2014
Singapore
Rates
Account opening
Cash account
Euroclear or local bank
Special requirements
None
Depository account
Euroclear or local custodian
Trading account
Yes
Process duration
Approximately 1-2 weeks
Trade and settlement flowchart
1. Transaction execution
MAS: The Monetary Authority of Singapore
* MAS operates MEPS+, a RTGS system that
settles large-value interbank fund transfers. MEPS+
also handles settlement of the cash leg of scripless
Singapore Government Securities.
Counterparty
2. Confirmation
3. Settlement and FX Conversion Instruction
4. Money Wire (USD/ SGD)
Global
Custodian
8. Settlement Order
5. Settlement & FX Conversion Instruction
6. Money Wire (USD/ SGD)
Local
Custodian
8. Settlement Order
MAS SGS
Book-entry
clearing
system*
10. Debit/Credit Confirmation
9. Debit/Credit Request
MAS
Electronic
Payment
System
7. SGD Conversion
Bond A/C
Investor
SGD A/C
Investor
Safe Keeping
A/C
SGD A/C
Investor
Counterparty
Linked
Linked
Source: Standard Chartered Research
Regulations and taxation
Tax types
Additional notes
Foreign investment regulations Not restricted
Income tax for non-residents
None
Capital gains tax
None
Source: Bloomberg, Reuters, Standard Chartered Research
77
11. DVP
Settlement
(T+1)
Investor
Counterparty
Asia
Foreign
Investor
Local Markets Compendium 2014
Singapore
Rates
Market participants
Asia
Banks
x Banks hold more than 60% of outstanding SGS.
x Banks typically hold more SGS than the minimum required liquid asset level.
x There are currently 13 Primary Dealers that act as market makers in the SGS market.
x Primary Dealers provide liquidity in the SGS market by quoting two-way prices under all market conditions.
x Primary Dealers also underwrite at SGS auctions and provide feedback/assist in market development.
x Regulated by the MAS (www.mas.gov.sg)
Central Provident Fund (CPF)
x The CPF invests more than 90% of its assets in non-tradable, special-issue SGS (at SGD 219bn as of Dec-12).
x The CPF had SGD 543mn worth of tradable SGS as of Dec-12. Tradable SGS holdings have been classified as available for
sale since Jan-11 to allow trading flexibility.
x For more information see www.cpf.gov.sg
Insurance companies
x Given the long duration of their liabilities, insurance companies are a source of demand for long-term SGS.
x Since 2004, insurance companies have been under risk-based capital rules; no requirement for minimum SGS holdings.
x Debt securities holdings reached SGD 175bn, or 46% of total assets, in 2012.
x Regulated by the MAS (www.mas.gov.sg)
MAS
x The MAS holds SGS for money-market operations. However, a change in regulation in 2000 enhanced the MAS repo facility; the
operation of the facility is no longer limited by the MAS’ existing SGS stock or the current outstanding size of any SGS issue.
x It adds to its inventory via bidding on a non-competitive basis (amounting to SGD 100-500mn) at SGS auctions and typically
holds to maturity.
Foreign investors
x While there is no official data on the amount of SGS held by foreign investors, we believe that they own 20-25% of
outstanding SGS.
x Foreign inflows to SGS are relatively sticky in nature, consisting of flows from HG- and AXJ-benchmarked funds, as well as
CBs and SWFs.
x The SGD is viewed as a proxy for AXJ currencies and attracts investors who want to gain exposure to AXJ currencies without
moving down the credit curve.
Source: Standard Chartered Research
Ownership by participant (SGD bn)
Ownership by participant (%)
120
80
100
Banks
70
Banks
60
80
60
Others
(Insurance,
etc.)
50
Central
Provident
Fund
20
40
30
40
20
0
2006
2007
2008
2009
2010
2011
Others
(Insurance,
etc.)
Central
Provident
Fund
10
0
2006
2012
2007
2008
2009
Source: CPF, MAS
Source: CPF, MAS
Yield curve over time – Moving higher (%)
Debt profile – SGS (SGD bn)
2011
2012
16
4.0
End-2009
3.5
14
2013
12
3.0
2.5
2010
End-2011
End-2010
10
End-2012
2.0
8
1.5
6
1.0
4
0.5
2
0
0.0
1Y2Y3Y4Y5Y 7Y8Y9Y10Y
15Y
20Y
30Y
2014 2016 2018 2020 2022 2024 2026 2028 2030 2032
Source: Bloomberg, Standard Chartered Research
Source: Bloomberg, Standard Chartered Research
78
Local Markets Compendium 2014
Singapore
Rates
Commercial banks – Stable asset growth
1.0
Commercial banks – Robust credit growth
120
25
Assets
(SGD tn)
0.8
20
0.6
15
0.4
10
12
Government
bonds % of
assets
110
100
y/y growth
(%, RHS)
0.2
2006
2007
2008
2009
2010
2011
90
9
80
8
5
70
0
60
Q4-07
2012
10
7
LDR (%, LHS)
6
Q3-08
Q2-09
Q1-10
Q4-10
Q3-11
Q2-12
Q1-13
Source: MAS, Standard Chartered Research
Source: MAS, Standard Chartered Research
Insurance sector – Bonds’ share is rising
Cross-sectional comparison of insurance density (2012)
10K
50
Bonds % of
assets (RHS)
Insurance density (USD)
200
40
150
30
Assets
(SGD bn)
100
20
50
CH
MT
KR
TW
MY
TH
CN
100
INID
PHLK
VN
10
BH
OM
LT
TT
UY
SV
PK
BD
10
SG
AE
PT
1K
USHK NO
1
0
2000
0
2002
2004
2006
2008
2010
0
5
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
2012
50
55
60
Source: MAS
Source: Swiss Re, IMF, Standard Chartered Research
Mutual funds – Equities and FI funds outperformed in
2012 (SGD tn)
Cross-sectional comparison of mutual funds (2012)
2.0
Equities
Balanced/mixed
Fixed income
Money market
Others
1M
Mutual fund/capita (USD)
IE
1.5
1.0
0.5
0.0
2005
100K
AU
10K
1K
MA
100
10
2008
2009
2010
2011
NO
DE
AE
LT
BG
RU
PA
VN JO
0
2007
CH US
TW
TH
CN
INID
PH
PK
SG
HK
KR
MY
1
2006
5
BW
10
15
2012
20 25 30 35 40 45
GDP PPP/capita (USD '000)
50
55
60
Source: MAS
Source: ICI, Swiss Re, IMF, Ministry of Finance, central banks
Pension funds – Debt holdings are very high
Cross-sectional comparison of pension funds (2012)
250
100K
96
200
150
Pension fund/capita (USD)
94
Bonds % of
assets (RHS)
92
90
Assets
(SGD bn)
88
100
86
84
50
82
0
2004
2006
2007
2008
2009
2010
2011
CH
10K
MY
NA
1K
LK TH
PH ID
CN
IN
100
BG
US
HK
SG
NO
TW AT
HU
DE
MT
CS
VN
10
IL
KR JP
FR
65
GR
UA
1
80
2005
65
0
2012
Source: CPF, Standard Chartered Research
5
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
Source: OECD, FIAP, Swiss Re, IMF, local sources including
pension fund associations, Ministry of Finance, central banks
79
50
55
60
65
Asia
0.0
2005
11
Local Markets Compendium 2014
South Korea
Danny Suwanapruti | Robert Minikin | Eddie Cheung | Chong Hoon Park | Eunhye Yoon
Asia
General
Monetary policy framework
Monetary policy tools
Name
Policy target
Reserve requirement
Required ratio: 2% for savings deposits and CDs, 7% for
demand deposits. Must be paid in cash with no interest.
Bank of Korea (BoK)
Headline CPI inflation between
2.5-3.5% y/y
Independence
High, under the Bank of Korea Act
Policy rate
7-day repo
Bloomberg ticker
KORP7D Index
Deciding body
Monetary Policy Committee
Policy decision-making One man, one vote
Decision meeting
Monthly
frequency
Announcement time
10:00 Seoul time
Press conference
11:20-12:00
Minutes published
19-20 days later
Open-market
To manage reserves in the banking
operations (OMOs)
system and the overnight call rate
Quarterly inflation
NA, semi-annual Monetary Policy
report
Report
OMOs
x Issuance of Monetary Stabilisation Bonds (MSBs) with
maturities from 14 days to 2Y
x Securities transactions: Outright sales and purchases,
repurchase agreements (RPs), mostly with 7-day maturities
Lending and deposit facilities
x Aggregate Credit Ceiling Loans to support trade financing
and SME loans
x Liquidity Adjustment Loans and deposits as a standing
facility to limit the volatility of the call rate
x Intraday overdrafts to banks for temporary shortages of
settlement funds
x Special Loans as the lender of last resort
Source: BoK, Standard Chartered Research
Source: BoK, Standard Chartered Research
Exchange rate framework
Exchange rate regime
Floating (IMF)
Exchange rate target
No target, but fairly frequent FX intervention to mitigate KRW volatility
Intervention instruments
Through spot USD-KRW, offshore non-deliverable forward (NDF) and onshore FX swap markets
Convertible?
Partially
Deliverable?
No
Fixing time and place
Spot date, fixing
Market Average Rate (MAR) announced at 15:15 Seoul time
Fixing methodology
Weighted average of day’s trading
T+2, fixing 2 days prior to settlement
Source: IMF, BoK, Standard Chartered Research
Economic and financial indicators
Government balances (% of GDP)
2011
2012
2013F
2014F
Real GDP, change
3.6
2.0
2.7
3.8
CPI inflation*
4.0
2.2
1.5
2.8
Current account/GDP
2.4
3.8
4.2
2.8
FX res./imports**
5.9
6.4
6.3
5.9
Fiscal balance/GDP
1.5
1.5
0.5
1.0
Primary balance/GDP
2.7
2.9
3.6
3.6
Gen. govt. debt/GDP
34.0
34.9
36.0
35.5
External debt/GDP
35.8
36.6
36.4
35.5
Policy rate***
3.25
2.75
2.50
2.75
A
A+
Moody’s
A1
Aa3
Fitch
A+
AA-
S&P
Country
rating
5
General govt.
debt (RHS)
40
35
4
30
3
25
2
Fiscal balance
20
1
15
0
10
-1
5
0
-2
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013F 2014F
*Yearly average; **months of imports; ***year-end;
Source: BoK, MoSF, IMF, Standard Chartered Research
Source: BoK, MoSF, Standard Chartered Research
80
Local Markets Compendium 2014
South Korea
FX
Exchange rate products
Availability
Daily trading volume
(USD mn)
Average trade size
(USD mn)
Bid/ask spread in KRW
onshore*
Bid/ask spread in KRW
offshore*
Reuters ticker
Spot
Outright forwards
NDFs
Yes
Options
FX swaps
19,000
24,000
3,000-4,000
4,000
17,000
10
50
30
1M 0.5
NA
3M 0.1, 6M 0.4, 1Y 0.6
5
NA
0.1
1M 1
0.5-0.8 vol for all
tenors
OTC
3M 0.3, 6M 0.5, 1Y 0.8
Asia
1M 0.5, 3M 0.5,
6M 0.6, 1Y 0.8
NA
NA
NA
*Versus USD; for FX swaps, bid/ask spread refers to swap points vs. USD; Source: BIS, Triennial Central Bank Survey, September 2013
Exchange rate regulation – Non-residents
Spot
Forwards
NRF account
SIP account
NRF account
Underlying asset – Trade and FDI
Underlying asset – Financial asset
No underlying asset
NDFs
No restrictions
Options
FX swaps
NRF account
Not allowed
*This refers to non-resident trading of NDFs with onshore banks.
NRs can open a NR Free (NRF) won account to trade KRW for international settlement or a NR domestic-currency account for domestic settlement. NRs must register
with the Financial Supervisory Service (FSS) and appoint a standing proxy (i.e., a bank) to file for an Investment Registration Certificate (IRC) from the FSS. After
obtaining an IRC, investors can use their Foreign Investment Registration number to open a Security Investment Purpose (SIP) account for trading financial assets.
For more details, please contact the BoK’s FX review team at +822 759 5775 or the MoSF’s FX policy division at +822 2150 4753, or visit
http://eng.bok.or.kr/broadcast.action?menuNaviId=691, http://www.kofia.or.kr/kofia/index.cfm?event=eng.inv.page02_1
Exchange rate regulation – Residents
x Banks’ forward FX positions should be less than 30% of capital for local banks and 150% of capital for foreign banks’ Korean
branches.
x FX-denominated loans should be used for FX funding purposes. Financial institutions cannot invest in ‘Kimchi bonds’ (FX
denominated bonds for KRW funding purposes) that are issued to bypass the regulation on FX-denominated loans.
x Corporates’ FX hedging ratio in FX derivatives should not exceed 100% of the amount of the underlying transaction.
Source: MoSF, BoK, FSS
Market participants
Corporates
Real-money
funds
Hedge funds
Interbank
40% x
x
25% x
x
15% x
x
20% x
Shipbuilders sell USD-KRW; refineries and utilities (gas corps., etc.) buy USD-KRW.
Exporters hedge around 70-80% of their exposure; importers typically leave their exposure unhedged.
Hedging behaviour of real-money funds varies, but they typically hedge around 70-80%.
CBs and SWFs are substantially involved in KRW given credit ratings, market liquidity and FX outlook.
Similar to real-money funds but involved in a wider range of products, including equities.
Hedging behaviour of hedge funds varies, but they typically hedge at least 70%.
Speculation and execution of orders from above-mentioned market players.
Source: Standard Chartered Research
KRW REER AND NEER – The KRW appears undervalued
110
The C/A remains solid (USD bn per quarter)
REER
40
FDI
Portfolio
Other
30
100
20
90
C/A
NEER
BoP
10
0
80
-10
70
-20
60
-30
50
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
-40
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: BIS
Source: BoK, Standard Chartered Research
81
Local Markets Compendium 2014
South Korea
Rates
Bonds
Monetary Stabilisation
Korea Treasury Bonds
Bonds
Ministry of Strategy
Bank of Korea
and Finance
Liquidity management
Fiscal financing
1M-2Y
3Y-20Y
1M, 3M, 1Y and 2Y
3Y, 5Y, 10Y, 20Y and 30Y
1-2Y fixed, < 1Y
Fixed
discount
Issuer
Use of proceeds
Curve span
Common tenors
Coupon
Asia
Coupon frequency
Quarterly
KTB futures
Korea Exchange
NA
3Y, 5Y and 10Y
3Y
Semi-annual
Day count
Primary market
Inflation linked bonds
Ministry of Strategy
and Finance
Fiscal financing
10Y
Cash settled
Floating
Mar, Jun, Sep, Dec
contracts
Semi-annual
Act/Act
Auction day
Auction cut-off
Monday, Wednesday
Monday
10:00 for 1-2Y, 13:30
for 3M and 14:00 for 1M
10:40
Auction results
Settlement 3rd week
of contract month
Trading hours: 09:0015:15
Single-price
Multiple-price (2 decimals)
Average issue size
KRW 2-6tn
KRW 1-1.5tn
NA
NA
Non-competitive option
for PD
Single-price (2 decimals)
Contract size: KRW
100mn
KRW 200 bn
30-40mins after auction
Auction style
3rd Monday for 10Y
KTB auction
Secondary market
Average trade size
KRW 10bn
Daily trading volume
Quotation convention
Settlement period
Bid/offer spread
Regulations
Custodian
KRW 6tn
KRW 12.7tn
Yield (2 decimals)
Contract size: KRW
100mn
130-150k contracts
Price (2 decimals)
KRW 20-30bn
Yield (2 decimals)
1-2 ticks*
3-5bps
KRW 10bn
T+1
1-2bps
Local custodian
Korea Exchange
Local custodian
* 1 tick = KRW 10,000; Source: Bloomberg, Standard Chartered Research
The size of the bond market is stabilising
Quarterly trading turnover ratio – Recovering since 2009
700
700
KRW tn (LHS)
600
500
500
USD bn (RHS)
400
400
300
300
200
200
100
100
0
2001
1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
2001
600
0
2003
2005
2007
2009
2011
2013
2003
2005
2007
Source: AsianBondsOnline
Source: AsianBondsOnline
Swaps
Floating-rate reference calculation
Main product
Average daily market volume
Average ticket size
Average bid/offer spread
Term
Liquid up to
Settlement
Coupon frequency
Convention
Floating-rate reference
Floating-rate ticker
Ticker (2Y)
Interest rate swaps
KRW 1.5-2.5tn
KRW 10-50bn
2bps
1-20Y
1-10Y
T+1
Quarterly
Act/365
3M CD
KWCDC index
KWSWO2 index (Bloomberg)
2009
2011
2013
The 3M CD fixing is calculated by the Korea Financial
Investment Association (KOFIA) from a survey of 10 securities
companies. The highest and lowest quotes are removed and
the remaining eight entries are used to derive a simple
average quote.
There are two fixes each day (at 11:30 and 15:30), and the
afternoon fixing is used as the reference rate for the domestic
IRS curve.
Source: Bloomberg, Reuters, Standard Chartered Research
Source: KOFIA
82
Local Markets Compendium 2014
South Korea
Rates
Account opening
Cash account
Local bank
Depository account
Local custodian (not
Euroclearable since the
implementation of WHT in
2010)
Trading account
Yes
Process duration
Approximately 2 weeks
Trade and settlement flowchart
Foreign
Investor
KSD: Korea Securities Depository
BoK: Bank of Korea
1. Transaction execution
Counterparty
2. Confirmation
7. Settlement Order
3. Settlement & FX conversion instruction
4. Money wire (USD)
Local
Custodian
9. Debit/credit Confirmation
KSD bond
settlement
system
6. Settlement order
BoK wire
system
8. Debit/credit Request
5. KRW Conversion
Bond A/C
Investor
KRW A/C
Investor
safe keeping
A/C
KRW A/C
Investor
Counterparty
10. DVP
settlement
(T+1)
Investor
Counterparty
Linked
Linked
Source: Standard Chartered Research
Regulations and taxation
Tax types
Additional notes
Foreign investment regulations Not restricted
Income tax for non-residents
15.4% (unless stated in MoSF announced the reintroduction of withholding taxes in NovDTAs)
2010 (effective in Jan-2011) to deter foreign inflows to the bond
market
Capital gains tax
None
None
Source: Bloomberg, Reuters, Standard Chartered Research
83
Asia
Special requirements
Foreign investors need to register with the Financial Supervisory Service and obtain an Investment Registration
Number/Certificate (IRC) prior to opening accounts. Foreign investors may appoint a standing proxy in Korea (usually an FX
bank), who will file for the IRC and open a trading account with a local securities company. Investment registration is not
required for a resident foreign individual or corporation. The documents required for obtaining an IRC are a power of attorney;
application for Investment Registration, registration of signature, certificate of incorporation/business registration, and audited
reports for the last three fiscal years.
Local Markets Compendium 2014
South Korea
Rates
Market participants
Banks
x Banks have a trading and investment account (for regulatory requirements). Liquidity ratio: 3M assets/3M liabilities > 100%.
x Banks typically buy KTBs out to 5Y for the trading account and out to 2Y for the investment account.
x Only cash can be used for reserve requirement purposes, unlike many other countries, where bonds are used.
Asia
Insurance companies
x Risk-based capital requirements took effect on 1 April 2011.
x The minimum solvency margin for insurance companies is 100%, but the FSS recommends at least 150%.
x Foreign companies generally have a higher solvency margin ratio than domestic companies, as their asset quality is better.
Investment trust companies (ITCs)
x ITCs are asset-management companies, but can take deposits. In contrast to banks, ITCs cannot offer loans.
x Fixed income funds are longer-dated (>2Y), and money-market funds are short-dated (average duration is around 2-3 months).
x MMFs can invest in MSBs and KTBs, as well as CDs, financial debentures, commercial paper and deposits.
Securities companies
x Offer brokerage services, but in Korea they are also depository institutions and provide asset-management services.
x Offer cash management and repo accounts. These are deposit accounts, but returns depend on underlying investments.
x Repo accounts are funded by deposits and invest in MSBs, KTBs and FDs (typical average duration is around 1Y or below).
x Cash management accounts are funded by deposits and invest in CDs, FDs, CP, deposits and call loans.
Pension funds
x National Pension Service (NPS) AUM is KRW 393tn. Its current asset allocation is 64.4% to domestic fixed income, 4.2% to
overseas fixed income, 17.9% to domestic equity, 5.7% to overseas equity and 7.8% to others.
x By 2016, it plans to reduce its asset allocation to domestic fixed income to less than 60%.
x All of the above investors are regulated by the Financial Supervisory Service (www.fss.or.kr).
Foreign investors
x Holdings are concentrated in the shorter tenors, but foreigners invest along the entire bond curve out to 20Y.
x Global CBs and SWFs have continued to increase their exposure to Korean government bonds in 2013, along with realmoney funds, despite the sell-off in EM.
x We estimate that CBs and SWFs account for 30-40% of foreign holdings of KRW government bonds.
Source: Standard Chartered Research
Ownership by participant (KRW tn)
Ownership by participant (%)
120
Insurance
100
Pension
40
35
80
Foreigners
60
2009
2010
2011
Foreigners
2012
Banks
10
Others
0
2008
2013
Government
2009
2010
Source: Infomax, Standard Chartered Research
Source: Infomax, Standard Chartered Research
Yield curve over time – Steepening (%)
Debt profile (KRW tn)
5.5
2012
2013
50
End-2010
4.0
2011
60
End-2009
5.0
4.5
Other NBFI
5
Government
0
2008
Pension
15
Other NBFI Others
20
Insurance
25
20
Banks
40
30
40
End-2011
30
3.5
3.0
End-2012
2.5
20
2013
10
2.0
0
1.5
O/N
1Y
3Y
5Y
10Y
2013 2016 2019 2022 2025 2028 2031 2034 2037 2040
Source: Bloomberg, Standard Chartered Research
Source: Bloomberg, Standard Chartered Research
84
Local Markets Compendium 2014
South Korea
Rates
Commercial banks – Asset growth is still weak
Commercial banks – LDR remains stable under 100%
Assets
(KRW qn)
1.4
1.2
25
130
20
120
1.0
15
0.8
10
0.6
5
0.4
y/y growth
(%, RHS)
0.2
2006
2007
2008
2009
2010
2011
2012
110
4.0
3.5
100
LDR (%, LHS)
90
3.0
80
2.5
0
70
-5
60
-10
50
Q1-09
2013
2.0
1.5
Q1-10
Q1-11
Q1-12
Q1-13
Source: FSS, Standard Chartered Research
Source: FSS, Infomax, Standard Chartered Research
Insurance sector – Bonds’ proportion of portfolio is stable
Cross-sectional comparison of insurance density (2012)
Bond % of
assets (RHS)
700
10K
20
Insurance density (USD)
800
15
600
500
10
400
300
Asset
(KRW tn)
200
5
CH
MT
KR
TW
MY
TH
CN
100
INID
PHLK
VN
10
SG
AE
PT
1K
USHK NO
BH
OM
LT
TT
UY
SV
PK
BD
100
1
0
0
1999 2001 2002 2003 2004 2005 2006 2008 2009 2010 2011 2012
0
5
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
50
55
60
Source: FSS, Standard Chartered Research
Source: Swiss Re, IMF, Standard Chartered Research
Mutual funds – Equity funds dominate (KRW tn)
Cross-sectional comparison of mutual funds (2012)
350
Equities
Balanced/mixed
Fixed income
Money market
Others
1M
IE
Mutual fund/capita (USD)
300
250
200
150
100
100K
AU
10K
1K
MA
100
10
2008
2009
2010
2011
BG
AE
RU
VN JO
0
2007
DE
LT
PA
1
2006
NO
TW
TH
CN
INID
PH
PK
SG
HK
CH US
KR
MY
50
0
2005
5
BW
10
15
2012
20 25 30 35 40 45
GDP PPP/capita (USD '000)
50
55
60
Source: ICI, Standard Chartered Research
Source: ICI, Swiss Re, IMF, Ministry of Finance, central banks
Pension funds – Bond’s share is falling
Cross-sectional comparison of pension funds (2012)
100K
40
Bonds % of
assets (RHS)
35
Pension fund/capita (USD)
450
400
350
300
250
200
150
100
50
0
2006
30
25
20
Assets
(National
Pension Fund,
KRW tn)
15
10
5
2008
2009
2010
2011
CH
10K
MY
NA
1K
LK TH
PH ID
CN
IN
100
BG
US
HK
SG
NO
TW AT
HU
DE
MT
CS
VN
10
IL
KR JP
FR
65
GR
UA
1
0
2007
65
0
2012
Source: National Pension Service, Standard Chartered Research
5
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
Source: OECD, FIAP, Swiss Re, IMF, local sources including
pension fund associations, Ministry of Finance, central banks
85
50
55
60
65
Asia
0.0
2005
4.5
Government
bonds % of
assets
Local Markets Compendium 2014
Sri Lanka
Nagaraj Kulkarni | Samantha Amerasinghe
Asia
General
Monetary policy framework
Monetary policy tools
Name
Policy target
Independence
Policy rate
Bloomberg ticker
Deciding body
Reserve requirement/liquidity ratio
x Required ratio: 6%, of which total requirement is in cash
with the Central Bank of Sri Lanka (CBSL).
x Liquidity ratio: 20% of eligible deposits have to be
maintained as liquid assets with the central bank, under the
Liquid Assets Ratio (LAR).
Central Bank of Sri Lanka (CBSL)
Average CPI inflation of 4-6% in 2014
High, under the Monetary Law Act
1-day repo
SLMMREP Index
Monetary Policy Committee (7 CBSL
officials)
Policy decision-making One man, one vote
Decision meeting
Every 4 weeks (12 times a year)
frequency
Announcement time
07:30 Colombo time
Press conference
No press conference held
Minutes published
Monetary policy statement on CBSL
website; no minutes
Open-market
To ensure policy rate maintained,
operations (OMOs)
manage liquidity
Quarterly inflation
NA; monthly press release on CPI
report
OMOs
x Interest rate corridor formed by the repurchase rate and the
reverse repurchase rate
x Daily auctions to absorb or inject liquidity
x Outright purchase/sale of government securities (T-bills only)
x Foreign exchange swaps
Standing facilities
x CBSL deposit facility window via which it accepts deposits
and issues government securities, which are not
transferrable or eligible to be used as collateral
x End-of-day liquidity adjustment window, which the CBSL
uses to provide a collateralised standing overnight facility
through which it offers overnight lending and borrowing
(subject to certain criteria) to financial institutions
Source: CBSL, Standard Chartered Research
Source: CBSL
Exchange rate framework
Exchange rate regime
Exchange rate target
Intervention instruments
Convertible?
Deliverable?
Fixing time and place
Spot date, fixing
Fixing methodology
Floating (IMF)
No target, but active FX intervention to mitigate LKR volatility
Through spot USD-LKR
Partially
No
12:10, Colombo
T+2
Polling based on inputs from 9 onshore banks between 11:50-12:00
Source: IMF, CBSL, Standard Chartered Research
Economic and financial indicators
Government balances (% of GDP)
2011
2012
2013F
2014F
0
Real GDP, change
8.3
6.4
6.5
7.2
-1
CPI inflation*
6.7
7.6
7.3
7.2
-2
-7.6
-6.6
-4.5
-4.0
-3
3.5
4.4
4.5
4.4
Fiscal balance/GDP
-6.9
-6.4
-6.5
-6.0
Primary balance/GDP
-1.4
-1.1
-1.2
-1.2
Gen. govt. debt/GDP
78.5
79.2
80.0
78.5
-6
External debt/GDP
49.7
56.7
55.0
54.0
-7
Policy rate***
7.00
7.50
7.00
6.75
-8
S&P
B+
B+
Moody’s
B1
B1
BB-
BB-
Current account/GDP
FX res./imports**
Country
rating
Fitch
120
100
80
-4
60
-5
40
Fiscal balance
General govt.
debt (RHS)
20
-9
-10
0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013F 2014F
*Yearly average; **months of imports; ***year-end;
Source: CBSL, IMF, Standard Chartered Research
Source: CBSL, Standard Chartered Research
86
Local Markets Compendium 2014
Sri Lanka
FX
Exchange rate products
Spot
Availability
Outright forwards
Yes, subject to
regulatory restrictions
Yes
35
Options
On a case-by-case
basis
FX swaps
Yes, subject to
regulatory restrictions
10
20
0.5
0.5
NA
1M 0.40, 6M 0.60,
1Y 0.60
0.20-0.30
NA
1M 0.40, 6M 0.60,
1Y 0.60
NA
NA
SCSL
SCSL
Asia
Daily trading volume
(USD mn)
Average trade size
(USD mn)
Bid/ask spread in LKR
onshore*
Bid/ask spread in LKR
offshore*
Reuters ticker
NDFs
*Versus USD; for FX swaps, bid/ask spread refers to swap points vs. USD; Source: Standard Chartered Research
Exchange rate regulation – Non-residents
Spot
Underlying asset – Trade and FDI
Underlying asset – Financial asset
No underlying asset
Forwards
Allowed up to 90 days for import bills
No
restrictions
Hedging only
NDFs
Options
FX swaps
NA
Not
allowed
NA
Not allowed
Foreign investors are permitted to enter into derivative transactions to minimise exchange or other risks of their investment in T-bonds or T-bills. The PDD and
Exchange Control Department (ECD) of the CBSL shall monitor and supervise the transactions relating to these treasury bonds.
For forwards, reference is CBSL’s Directions to Authorised Dealers Ref: 06/04/01/2012, dated 1 Mar 2012
For more details, see the CBSL website at www.cbsl.gov.lk/, including the following link:
www.cbsl.gov.lk/pics_n_docs/10_pub/_docs/pa/booklet/ex_con_act_foexman.pdf
Exchange rate regulation – Residents
x Residents can buy foreign exchange up to USD 5,000 for travel purposes
x A resident corporation can access the forward market for hedging, provided it has a valid underlying transaction.
x A corporate can borrow a maximum of USD 20mn overseas at any given time, subject to restrictions on tenor, cost and end use.
Source: CBSL, Standard Chartered Research
Market participants
Corporates
Real-money
funds
Hedge funds
Interbank
64% x
x
1% x
x
0% x
35% x
x
Exporters with USD receivables typically sell long-dated USD-LKR forwards given recent LKR appreciation.
Importers have benefited from low hedges and are reluctant to enter into USD-LKR forward contracts.
Real-money funds access the FX market to hedge their exposure in local equities and bonds.
Real-money funds typically leave their LKR exposure unhedged.
NA
Interbank participants take active positions in both spot and forwards.
Short-tenor forwards up to 6M are most liquid and witness the most interbank activity.
Source: Standard Chartered Research
LKR REER and NEER – The LKR REER has strengthened
The C/A deficit is large (USD bn per quarter)
C/A
3
140
FDI
Portfolio
Other
REER
130
2
120
1
110
100
BoP
0
90
-1
80
70
2005
NEER
-2
2006
2007
2008
2009
2010
2011
2012
2013
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: CBSL
Source: IMF
87
Local Markets Compendium 2014
Sri Lanka
Rates
Bonds
Asia
T-bonds
Issuer
Use of proceeds
Curve span
Common tenors
Coupon
Coupon frequency
Day count
Primary market
Auction day
Auction cut-off
Auction results
Auction style
Average issue size
Secondary market
Average trade size
Daily trading volume
Quotation convention
Settlement period
Bid/offer spread
Regulations
Custodian
T-bills
Government of Sri Lanka
Fiscal deficit financing
2Y-10Y
3Y, 4Y, 5Y
Fixed
Semi-annual
Act/Act
Cash management
3M, 6M, 1Y
Zero
NA
Act/364
Ad hoc
Wednesday
11:00
13:00-14:00
Multiple-price
LKR 1bn
LKR 2.5-3.0bn
LKR 50-100mn
LKR 500mn-1bn
LKR 1bn
Yield (2 decimals)
T+2
10bps
Local custodian
Source: CBSL, Standard Chartered Research
Steady rise of the government bond market
Trading turnover ratio – Falling
3.0
25
2.5
20
2.0
1.5
1.4
1.3
1.2
15
USD bn (RHS)
1.5
1.1
LKR tn (LHS)
10
1.0
0.5
5
0.0
2005
0
1.0
0.9
0.8
2006
2007
2008
2009
2010
2011
0.7
2006
2012
2007
2008
2009
2010
2011
2012
Source: CBSL Weekly Bulletin
Source: CBSL- Public Debt Management in Sri Lanka
Domestic market borrowing is significant (LKR bn)
Composition of outstanding government debt (LKR tn)
350
2.5
Non-bank
borrowing
300
Treasury
bonds
2.0
250
200
1.5
150
1.0
Treasury bills
100
Foreign
commercial
borrowing
50
0
2006
2007
2008
2009
0.5
Rupee loans
2010
2011
2012
0.0
2002
2013
Source: CBSL, MoF, Standard Chartered Research
2004
2006
Source: CBSL, MoF, Standard Chartered Research
88
2008
2010
2012
Local Markets Compendium 2014
Sri Lanka
Rates
Account opening
Cash account
Local bank
Special requirements
None
Depository account
Local custodian
Trading account
Yes
Process duration
Approximately 1-2 weeks
Trade and settlement flowchart
1. Transaction execution
CBSL: Central Bank of Sri Lanka
SSDS: Scripless Securities Depository System
SSSS: Scripless Securities Settlement System
Authorised
dealer (AD)
2. Confirmation
The Central System at CBSL is comprised of the
RTGS and LankaSecure systems (the SSS and the
SSDS). Securities are earmarked in the
LankaSecure system which submits transactions to
the RTGS for DVP settlement
3. Settlement and FX conversion instruction
7. Trade Report
4. Money wire (USD)
Local
Custodian
6. Settlement order
9. Debit/credit confirmation
CBSL
LankaSecure
system
8. Debit/credit request
CBSL RTGS
5. LKR conversion
Bond A/C
Investor
LKR A/C
Investor
safe keeping
A/C
LKR A/C
Investor
10. DVP
settlement
(T+2)
AD
Investor
Linked
Linked
Source: CBSL Standard Chartered Research
Regulations and taxation
Tax types
Additional notes
Foreign investment regulations Restricted
Income tax for non-residents
Exempt
Capital gains tax
0
Restricted to 12.5% of outstanding T-bonds and T-bills
Source: CBSL, Standard Chartered Research
89
AD
Asia
Foreign
investor
Local Markets Compendium 2014
Sri Lanka
Rates
Market participants
Employees’ Provident Fund (EPF)
x Sri Lanka’s largest social security scheme, with an asset base of LKR 1.14tn as of end-2012.
x Major investor in the government bond market, holding c.46% of total outstanding securities as of end-2012.
x Regulated by the CBSL (www.cbsl.gov.lk) and the government’s labour department (www.labourdept.gov.lk)
Asia
National Savings Bank (NSB)
x A licensed specialised bank (LSB) owned by the government of Sri Lanka.
x It is mandated to invest a minimum of 60% of its deposits in government securities.
x As of end-2012, c.71% of its deposits were invested in government securities.
Licensed Commercial Banks (LCBs)
x Required to maintain 20% of their liabilities in liquid assets (cash, balances with banks, treasury bills and bonds, and trade bills).
x LCBs held c.10% of total outstanding T-bonds as of end-2012. Regulated by the CBSL (www.cbsl.gov.lk)
Primary Dealers (PDs)
x Counterparty to the central bank in the primary and secondary government securities markets. Currently there are 12 PDs.
x In primary issuance, PDs (in aggregate) are mandated to subscribe to the entire offer; a single dealer must bid a minimum of
10% of the total issuance. Regulated by the CBSL (www.cbsl.gov.lk)
Employees’ Trust Fund Board (ETFB)
x The fund is for all private- and public-sector employees who are not entitled to government pensions.
x Its total investment portfolio as of end-2012 was c.LKR 149.8bn, of which c.89.5% was invested in government securities.
x Similar to EPF and NSB, this is a captive investor in the government bond market.
x Regulated by the Ministry of Finance and Planning (www.treasury.gov.lk)
Others
x Since January 2009, the Sri Lankan diaspora and migrant workers have been allowed to invest in T-bonds and T-bills issued
via primary auctions/direct placements through authorised lead managers (LMs).
x The combined limit for investment in T-bonds and T-bills by Sri Lankan diaspora and eligible foreign investors is 12.5% of the
outstanding amount. The investment has to be via the primary market from PDs and LCBs registered with the CBSL.
x Investments by the Sri Lankan diaspora and foreign investors are regulated by the CBSL (www.cbsl.gov.lk).
Source: CBSL, Ministry of Finance and Planning, EPF, ETFB
Ownership by participant (LKR tn)
Ownership by participant (%)
1.2
EPF
50
1.0
EPF
40
0.8
Insurance &
finance
0.6
Departmental and other
official funds
0.4
Private & other
0.2
0.0
2005
30
Savings institutions
Others
Foreigners
2007
2008
2009
2010
2011
Insurance &
finance
Savings institutions
20
Private & other
10
Commercial
banks
2006
Departmental and other
official funds
Others
0
2005
2012
2006
2007
2008
2009
2010
Foreigners
Commercial
banks
2011
Source: CBSL
Source: CBSL
Yield curve over time – Yields have come off (%)
Debt profile of T-bonds – Short maturity (LKR bn)
2012
500
14
13
End-2012
12
2013
11
End-2011
10
400
End-2009
300
200
End-2010
9
8
100
7
0
6
O/N 6M 1Y
2Y
5Y
10Y
2014
Source: Bloomberg
2016
2018
2020
2022
Source: CBSL, Standard Chartered Research
90
2024
2026
2028
2030
2032
Local Markets Compendium 2014
Sri Lanka
Rates
Commercial banks – Asset growth is falling
Commercial banks – Loan-to-deposit ratio is edging lower
4.5
y/y growth
(%, RHS)
4.0
3.5
3.0
25
60
18
16
50
14
Government
bonds % of
assets
40
1.5
20
LDR (%, LHS)
15
2.0
0.5
70
20
2.5
1.0
30
12
10
Assets
(LKR bn)
5
20
Q1-09
0
2006
2007
2008
2009
2010
2011
2012
8
2013
6
Q3-09
Q1-10
Q3-10
Q1-11
Q3-11
Q1-12
Q3-12
Source: CBSL
Source: CBSL, Standard Chartered Research
Provident funds – Bonds’ share is falling
Cross-sectional comparison of insurance density (2012)
10K
93
160
Investment
portfolio
(LKR bn)
120
100
Insurance density (USD)
140
92
91
80
60
Govt. sec.
% of
investments
(RHS)
40
20
0
2006
2007
2008
2009
2010
2011
90
CH
MT
TW
KR
1K
MY
TH
CN
100
ID
LK
IN
PH
10
PK
BD
89
VN
USHK NO
BH
OM
LT
TT
UY
SV
1
88
2012
0
5
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
50
55
Source: ETFB
Source: Swiss Re, IMF, Standard Chartered Research
Rapid growth in deposits of National Savings Bank
Unit Trust Funds picking up gradually (LKR bn)
550
% of total
assets in
government
securities
500
450
68
35
66
30
300
200
2006
Investment in other
instruments
62
60
10
58
2007
2008
2009
2010
Investment in
equity
15
250
2011
5
Investment in
treasury bills
0
2007
56
2012
2008
2009
2010
2011
2012
Source: NSB
Source: SEC
Pension funds – Increasing demand from EPFO
Cross-sectional comparison of pension funds (2012)
T-Bonds % of
portfolio (RHS)
1.1
94
1.0
92
0.9
90
0.8
88
EPFO
Investment
portfolio
(LKR tn)
0.7
0.6
0.5
0.4
2007
2008
2009
2010
100K
96
Pension fund/capita (USD)
1.2
86
84
82
2011
65
Net asset value of
unit trusts
20
400
Total assets
(LKR mn,
LHS)
60
25
64
350
SG
AE
PT
CH
10K
MY
NA
1K
LK TH
PH ID
CN
IN
100
BG
US
HK
SG
NO
TW AT
HU
DE
MT
CS
VN
10
IL
KR JP
FR
GR
UA
1
80
2012
0
Source: EPFO, Standard Chartered Research
5
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
Source: OECD, FIAP, Swiss Re, IMF, local sources including
pension fund associations, Ministry of Finance, central banks
91
50
55
60
65
Asia
0.0
2005
10
30
Local Markets Compendium 2014
Taiwan
Lawrence Lai | Eddie Cheung | Tony Phoo
Asia
General
Monetary policy framework
Monetary policy tools
Name
Policy target
Central Bank of China (CBC)
No explicit policy target, but core CPI
inflation below 2% is key comfort level
Independence
High, under the revised Central Bank
of China Act, 8 November 1979
Policy rate
Rediscount rate
Bloomberg ticker
TAREDSC Index
Deciding body
Monetary Policy Committee
Policy decision-making Monetary Policy Committee
Decision meeting
Quarterly
frequency
Announcement time
16:00-17:30 Taipei time
Press conference
Immediately after MPC meeting
Minutes published
Monetary policy statement same day,
no minutes
Open-market
To manage money market liquidity
operations (OMOs)
Quarterly inflation
None
report
Discount window
x The central bank implements its discount window policy by
either changing the discount rate or providing credit to banks.
x Three types of credit are available: discounts,
accommodations with collateral, and accommodations
without collateral.
x Changes in the discount rate signal the bank’s policy
stance.
Source: CBC, Standard Chartered Research
Source: CBC, Standard Chartered Research
OMOs
x Open-market operation instruments include government
securities, and negotiable certificates of deposit (NCDs)
issued by the central bank.
x The central bank can issue or sell these instruments either
on an outright basis or under repurchase agreements to
mop up excess liquidity.
Reserve requirement ratios (RRRs)
Effective 1 January 2011:
- 10.75% for chequebook deposits
- 9.775% for demand deposits
- 90.0% for custodian balances
- 5.5% for savings deposits
- 5.0% for fixed deposits
- 4.0% for fixed-savings deposits
Exchange rate framework
Exchange rate regime
Flexible (CBC)
Exchange rate target
No target, but may intervene to mitigate TWD volatility
Intervention instruments
Through spot USD-TWD and sell/buy FX swaps onshore
Convertible?
Partially
Deliverable?
No
Fixing time and place
Spot date, fixing
11:00, Taipei
Fixing methodology
Last transaction dealt in Taipei Forex Inc. before 11:00
T+2, fixing 2 days prior to settlement
Source: CBC, Standard Chartered Research
Economic and financial indicators
Government balances (% of GDP)
2011
2012
2013F
2014F
0.0
45
Real GDP, change
4.0
1.3
3.0
4.3
-0.5
40
CPI inflation*
1.4
1.9
1.4
1.9
-1.0
Current account/GDP
8.8
10.2
8.0
7.0
-1.5
FX res./imports**
16.40
17.90
17.50
16.40
Fiscal balance/GDP
-2.0
-2.20
-1.50
-1.50
-1.20
Primary balance/GDP
1.70
0.60
1.00
1.00
Gen. govt. debt/GDP
40.10
41.10
41.90
42.50
-3.0
External debt/GDP
26.30
27.60
28.00
28.30
-3.5
Re-discount rate***
1.875
1.875
1.875
2.375
-4.0
Country
rating
S&P
AA-
AA-
Moody’s
Aa3
Aa3
A+
A+
Fitch
35
General govt.
debt (RHS)
30
25
-2.5
20
15
10
5
-4.5
Fiscal balance
0
-5.0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013F 2014F
*Yearly average; **months of imports; ***year-end;
Source: CBC, DGBAS, MOF, Standard Chartered Research
Source: MoF
92
Local Markets Compendium 2014
Taiwan
FX
Exchange rate products
Spot
NDFs
Yes
Options
FX swaps
1,000
800-1,000
1,000
2,500
1
5
20
10
NA
1M 0.002 3M 0.003
6M 0.005 12M 0.01
0.4 vol
NA
OTC
TAIFX2
1M 0.005 3M 0.008
6M 0.01 12M 0.015
0.003
NA
TAIFX1
TAIFX2
1M 0.02 3M 0.02
6M 0.03 12M 0.03
1M 0.001
3M 0.002
INDF01
*Versus USD; for FX swaps, bid/ask spread refers to swap points vs. USD; Source: Standard Chartered Research, BIS Triennial Survey, September 2013
Exchange rate regulation – Non-residents
Spot
Underlying asset – Trade and FDI
Underlying asset – Financial asset
Forwards
Relevant
documents required
Onshore only
No restrictions
(monitored by CBC)
NDFs
Options
Onshore only
Not allowed
RHS only
No underlying asset
FX swaps
RHS only
Not allowed
*This refers to non-resident trading of NDFs with onshore banks.
A single remittance by a non-resident not exceeding USD 100,000 may proceed directly through authorised banks. Otherwise, prior CBC approval is required.
www.cbc.gov.tw/ct.asp?xItem=857&CtNode=481&mp=2;www.law.cbc.gov.tw/webCbcEng/wfrmLaw_ShowAll.aspx?LawID=LA04C007003;
http://law.fsc.gov.tw/law/EngLawContent.aspx?id=FL007021
Exchange rate regulation – Residents
Total annual remittances not exceeding USD 5mn by a natural person and total annual remittances not exceeding USD 50mn
by a juridical person may proceed directly through authorised banks. Total remittances exceeding these amounts require prior
CBC approval.
Source: CBC, Standard Chartered Research
Market participants
Corporates
Real-money
funds
Hedge funds
Interbank
20% x
x
50% x
x
20% x
x
10% x
Local exporters typically sell USD-TWD to hedge their USD receivables before month -end.
Local oil importers and subsidiary of foreign corporates are major corporate buyers of USD-TWD spot.
Real-money funds typically leave their exposure through bond and equities unhedged.
CBs and SWFs have limited involvement in TWD given very low bond yields.
Hedge funds have little involvement in the TWD market compared to real-money funds.
Investors with no underlying assets mainly trade TWD through offshore forwards with less liquidity.
The central bank has a strong tendency to ensure ample liquidity at times of market stress.
Source: Standard Chartered Research
TWD REER and NEER – Bouncing off 2011 lows
Strong C/A balance keeps BoP account in surplus
USD bn per quarter
C/A
30
105
100
FDI
Portfolio
Other
BoP
20
95
90
NEER
10
85
0
80
-10
75
70
65
-20
REER
-30
60
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: BIS
Source: CBC
93
Asia
Availability
Daily trading volume
(USD mn)
Average trade size
(USD mn)
Bid/ask spread in TWD
onshore*
Bid/ask spread in TWD
offshore*
Reuters ticker
Outright forwards
Local Markets Compendium 2014
Taiwan
Rates
Asia
Bonds
Issuer
Use of proceeds
Curve span
Common tenors
Coupon
Coupon frequency
Day count
Primary market
Auction day
Auction cut-off
Auction results
Central Government Bonds
T-bills
Ministry of Finance
Fiscal financing
Treasury management
2Y-30Y
3M-12M
2Y, 5Y,10Y, 20Y, 30Y
91-, 182-, 273-, 364-day
Fixed
Zero
Annual
Act/365
NA
12:00
12:30
Auction style
Average issue size
Secondary market
Average trade size
Daily trading volume
Quotation convention
Settlement period
Bid/offer spread
NCDs
CBC
Liquidity management
1M-24M
30-, 91-, 182-, 364-day
Fixed
NA
Daily
10:15
12:00
Multiple-price for 364D, singleprice for rest
TWD 10-100bn
Single-price
TWD 30-40bn
TWD 300mn
TWD 15bn
Illiquid
NA
Yield (4 decimals)
T+2
0.1-0.5bps for on-the-run
3-5bps for off-the-run
Regulations
Custodian
Illiquid
Local custodian
CBC
Source: GreTai, MOF, CBC
Outstanding government bonds – Rising
6
Quarterly bond trading turnover ratio – Falling
TWD tn (LHS)
5
4
USD bn (RHS)
3
2
1
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
180
160
140
120
100
80
60
40
20
0
12
10
8
6
4
2
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: CBC
Source: CBC, SFB
Swaps
Floating-rate reference calculation
Main product
Average daily market volume
Average ticket size
Average bid/offer spread
Term
Liquid up to
Settlement
Coupon frequency
Convention
Floating-rate reference
Floating-rate ticker
Ticker (2Y)
Interest rate swaps
TWD 20bn
TWD 500mn
1-3bps
1Y-10Y
1Y-5Y
T+2
Quarterly
Act/365
3M, Secondary CP fixing
TW90DCPE= (Reuters)
NTSWO2 Index (Bloomberg)
Based on international standards, the fixing is calculated daily
at 11:00 Taipei time, except on local holidays. The mid-rate is
calculated for each contributor. Only prices that have been
updated on the day are included. One-way quotations are
excluded. The top 25% and the bottom 25% are eliminated
and the remaining mid-rates are averaged.
Source: Bloomberg, Reuters, Standard Chartered Research
Source: Bloomberg
94
Local Markets Compendium 2014
Taiwan
Rates
Account opening
Cash account
Local bank
Special requirements
Depository account
Local custodian
Trading account
Yes
Process duration
Approximately 1 week
Trade and settlement flowchart
Foreign
investor
1. Transaction execution
TWSE: Taiwan Stock Exchange Corporation
GTSM: Gre Tai Securities Market
CBC: Central Bank of China (Taiwan)
FISC: Taiwan Financial Information Service Co., Ltd
TDCC: Taiwan Depository and Clearing Corporation
CGSS: Central Government Securities Settlement System
CIFS: CBC Interbank Funds Transfer System
Authorised
Dealer (AD)
3. Confirmation
2. Order match
7. Affirm trade
(by 15.30,
TD+1)
TWSE/GTSM
5. Settlement Instruction
(by 12:00, TD+1)
6. Money wire and FX &
transfer instruction
(by 12:00, TD+1)
Local
custodian
9. Trade dispute/settlement order
11. Debit/credit confirmation
CBC CGSS
system
Investor
safe keeping
A/C
CBC CIFS
system**
10. Debit/credit request
Bond A/C
8. TWD Conversion
Investor
TWD A/C
4. Trading report
* Only book-entry transactions within a clearing bank (not
between clearing banks) can be made on a DVP basis
** The CIFS links with the CGSS System, FISC’s Financial
Information System (FISC-FIS), TDCC’s Bills Clearing
System (TDCC-BCS), TWSE’s Securities Book-Entry
Clearing System (TWSE-SBECS) and GTSM’s Electronic
Bond Trading System (GTSM-EBTS)
TWD A/C
Investor
12. DVP
settlement
(T+2)*
AD
Investor
AD
Linked
Linked
Source: CBC, Standard Chartered Research
Regulations and taxation
Tax types
Additional notes
Foreign investment regulations Not exceeding 30% of
inward remittance
amount
This amount includes government bonds, time deposits, moneymarket instruments and funds’ margin of OTC derivatives and localcurrency interest rate derivatives
Income tax for non-residents
Subject to 15%
withholding tax on
interest income
Capital gains tax
Exempt
Source: Bloomberg, Reuters, Standard Chartered Research
95
Asia
Foreign Institutional Investors (FINI) are required to register with the TWSE to obtain an Investor ID, a tax ID and a Certificate
of Registration. FINI can appoint a domestic agent or representative (usually a custodian bank) to handle the registration
process and open a cash account, custodial account and trading account on their behalf. Documents required for FINI
registration with the TWSE:
x Registration Form, Letter of Appointment of Agent, Certificate of Incorporation
x Notification of appointed tax agent
x Consent letter to broker (to contact TDCC and/or the custodian to obtain information)
x Authenticated instruction to open brokerage accounts
Local Markets Compendium 2014
Taiwan
Rates
Market participants
Asia
Domestic banks and the Postal Savings Bank
x 25 banks hold more than 40% of the total outstanding.
x Postal Saving Bank (PSB) is a government owned financial institutions and also the single biggest TGB holders.
x Banks prefer short-end TGBs and are active in 2Y, 5Y and 10Y TGBs.
x Regulated by the Banking Bureau (www.banking.gov.tw/) and CBC (www.cbc.gov.tw/)
Securities firms and bill houses
x The 25 securities firms are the most active in trading, accounting for approximately 40% of total turnover.
x Given the decrease in the size of securities firms, their TGB holdings have also fallen, to below 1% from 3%.
x There are 7 bill houses. Their activity has also declined recently.
x Regulated by the Securities and Futures Bureau (www.sfb.gov.tw/)
Life insurance companies
x The largest group of holders of TGBs, accounting for about 50% of the total outstanding.
x The main buyers of long tenors bond in auction market and not active in the secondary market.
x Recently, the holdings of TGBs decreased and shift to other asset class
x Regulated by the Insurance Bureau (www.ib.gov.tw/)
Foreign investors
x Foreign investors are lightly positioned in TGBs. The participation of foreign investors, including SWFs, is still limited.
x Foreign investors prefer the short-end of the curve which has less duration exposure but has FX gain when TWD appreciate.
x Foreigners can purchase bonds up to a maximum of 30% of total inflows and must open a book-entry account and fund account
with a clearing bank.
Others
x Money-market funds typically invest out to a maximum 1Y, except repo.
x The weighted duration of bond funds typically exceed 1Y.
x Regulated by SITCA (www.sitca.org.tw/)
Source: CBC, Standard Chartered Research
Ownership by participant (TWD tn)
Ownership by participant (%)
3.0
50
Banks
2.0
Insurance &
others
60
Insurance &
others
2.5
Banks
40
1.5
30
1.0
20
0.5
Trust
0.0
2003
2004
2005
2006
2007
2008
Securities
2009
2010
2011
0
2003
2012
Securities
Trust
10
2004
2005
2006
2007
2008
2009
2010
Source: CBC
Source: CBC
Yield curve has steepened in 2013 (%)
Debt profile – Government bonds (TWD bn)
3.0
2012
500
End-2009
2.5
2011
2013
End-2010
400
2.0
300
1.5
End-2012
200
End-2011
1.0
100
0.5
0
0.0
3M1Y2Y3Y4Y5Y6Y 8Y9Y10Y
15Y
20Y
25Y
30Y
2013 2016 2019 2022 2025 2028 2031 2034 2037 2040 2043
Source: Bloomberg
Source: Bloomberg, Standard Chartered Research (DDIS <go>)
96
Local Markets Compendium 2014
Taiwan
Rates
Commercial banks – Asset growth is rising
40
Commercial banks – Bond holdings remain unchanged
72
10
% y/y (RHS)
35
70
5
30
68
Total assets
(TWD tn)
25
20
10
Government
bonds % of
assets
15
0
66
-5
64
6
LDR (%, LHS)
-10
-15
2006
2008
2010
58
Q4-04 Q4-05 Q4-06 Q4-07 Q4-08 Q4-09 Q4-10 Q4-11 Q4-12
2012
Source: CBC
Source: CBC
Life insurance sector – Bonds’ share is falling
Cross-sectional comparison of insurance density (2012)
10K
14
Bonds % of
assets (RHS)
12
Insurance density (USD)
25
16
20
10
15
8
6
10
Total assets
(TWD tn)
4
KR
TW
1K
MY
TH
CN
100
INID
PHLK
VN
10
USHK NO
SG
AE
PT
BH
OM
LT
TT
UY
SV
PK
BD
5
2
CH
MT
0
1
0
2000
2002
2004
2006
2008
2010
0
2012
0
5
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
50
55
60
Source: CBC
Source: Swiss Re, IMF, Standard Chartered Research
Mutual funds – AUM breakdown (TWD tn)
Cross-sectional comparison of mutual funds (2012)
Equities
Balanced/mixed
Fixed income
Money market
Others
1M
Mutual fund/capita (USD)
IE
1.5
1.0
0.5
100K
AU
10K
1K
MA
100
10
2007
2008
2009
2010
2011
DE
AE
LT
BG
RU
PA
VN JO
0
2012
NO
TW
TH
CN
INID
PH
PK
SG
HK
CH US
KR
MY
1
2006
65
5
BW
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
50
55
60
Source: ICI, SITCA
Source: ICI, Swiss Re, IMF, Ministry of Finance, central banks
Labour pension funds increase continuously
Cross-sectional comparison of pension funds (2012)
65
Assets, TWD tn
100K
1.60
Pension fund/capita (USD)
1.55
1.50
1.45
1.40
1.35
CH
10K
MY
NA
1K
LK TH
PH ID
CN
IN
100
BG
HK
SG
NO
TW AT
HU
DE
MT
GR
UA
1.30
US
CS
VN
10
IL
KR JP
FR
1
1.25
Jun-12
0
Dec-12
Jun-13
Source: TII, Standard Chartered Research
5
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
Source: OECD, FIAP, Swiss Re, IMF, local sources including
pension fund associations, Ministry of Finance, central banks
97
50
55
60
65
Asia
0
2004
2
60
5
0.0
2005
4
62
10
2.0
8
Local Markets Compendium 2014
Thailand
Danny Suwanapruti | Thomas Harr | Usara Wilaipich
Asia
General
Monetary policy framework
Monetary policy tools
Name
Policy target
Reserve requirement
Required ratio: 6%, of which 1.0-3.5% is in cash with the Bank
of Thailand (BoT) and the remainder is in eligible securities
such as government bonds
Bank of Thailand (BoT)
Core CPI inflation between 0.5-3.0%
y/y
Independence
High, under the Bank of Thailand Act,
B.E. 2551
Policy rate
1-day repo
Bloomberg ticker
BTRR1DAY Index
Deciding body
Monetary Policy Committee (3 BoT
officials and 4 outside experts)
Policy decision-making One man, one vote
Decision meeting
Every 6 weeks (8 times a year)
frequency
Announcement time
14:30 Bangkok time
Press conference
14:00-14:30
Minutes published
2 weeks later
Open-market
To ensure policy rate maintained,
operations (OMOs)
manage liquidity
Quarterly inflation
3rd week of Jan, Apr, Jul, Oct
report
OMOs
x Bilateral repurchase operations; outright purchase/sale of
government securities
x Issuance of BoT bonds
x Foreign exchange swaps
Standing facilities
x BoT deposit facility window where the BoT accepts deposits
and issues electronic promissory notes, which are not
transferrable or eligible to be used as collateral
x End-of-day liquidity adjustment window, which the BoT uses
to provide a collateralised standing overnight facility where it
offers overnight lending and borrowing to financial institutions
Source: BoT, Standard Chartered Research
Source: BoT, Standard Chartered Research
Exchange rate framework
Exchange rate regime
Floating (IMF)
Exchange rate target
No target, but active FX intervention to mitigate THB volatility and ensure THB NEER reflects
fundamentals
Intervention instruments
Through spot USD-THB and sell/buy FX swaps onshore
Convertible?
Partially
Deliverable?
Yes
Fixing time and place
Spot date, fixing
11:00 Bangkok time (onshore), 11:30 Singapore time (offshore)
Fixing methodology
Polling of banks at 10:45 Bangkok time (onshore); volume-weighted average price of actual
interbank USD-THB spot transactions between 10:30-11:00 Singapore time (offshore)
T+2
Source: IMF, BoT, Reuters, Standard Chartered Research
Economic and financial indicators
Government balances (% of GDP)
2011
2012
2013F
2014F
0.5
Real GDP, change
0.1
6.4
4.0
5.5
0.0
CPI inflation*
3.8
2.9
2.5
3.2
Current account/GDP
50
-0.5
3.7
0.6
-0.4
-0.9
FX res./imports**
10.3
11.2
10.3
9.4
-1.0
Fiscal balance/GDP
-3.6
-3.2
-2.6
-2.0
-1.5
Primary balance/GDP
-1.5
-2.5
-2.2
-2.0
-2.0
Gen. govt. debt/GDP
43.0
44.2
45.5
48.0
External debt/GDP
30.8
35.8
35.0
36.5
Policy rate***
3.25
2.75
2.50
3.50
S&P
BBB+
BBB+
Moody’s
Baa1
Baa1
BBB
BBB
Country
rating
Fitch
60
General govt.
debt (RHS)
40
30
20
-2.5
-3.0
10
-3.5
Fiscal balance
-4.0
0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013F 2014F
*Yearly average; **months of imports; ***year-end;
Source: BoT, IMF, Standard Chartered Research
Source: BoT, MoF, Standard Chartered Research
98
Local Markets Compendium 2014
Thailand
FX
Exchange rate products
Spot
2,836
Options
5
NA
1M 0.015, 3M 0.02,
6M 0.025, 12M 0.03
1M 0.015, 3M 0.02,
6M 0.06, 12M 0.09
0.01
FX swaps
Yes
1,107
ABSFIX01 or
BOT01 (Industry)
Reuters ticker
NDFs
95
3,503
30
30
1M 0.05, 3M 0.01,
6M 0.015, 12M 0.02
1M 0.005, 3M 0.01,
6M 0.05, 12M 0.08
1 vol for all tenors
3 vol for all tenors
NA
OTC
NA
*Versus USD; for FX swaps, bid/ask spread refers to swap points vs. USD; Source: BIS, Triennial Central Bank Survey, December 2010
Exchange rate regulation – Non-residents
Spot
Underlying asset – Trade and FDI
Underlying asset – Financial asset
No underlying asset
Forwards
NDFs
No restrictions
No restrictions
Options
FX swaps
Allowed
NA
Buy300, Sell10
Buy300, Sell10
Buy 300: Non-residents (NRs) can buy THB, but the total outstanding balance for each domestic bank cannot exceed THB 300mn per group of NRs
Lend10: NRs can sell THB, but the total outstanding balance for each domestic bank cannot exceed THB 10mn per group of NRs
For more details, see the links below on the BoT website, or contact the BoT’s FX compliance team on +662 283 5326.
www.bot.or.th/English/ForeignExchangeRegulations/Measure_to_Prevent_Thai%20Baht_Speculation/Pages/Objectives_Principal.aspx
www.bot.or.th/English/ForeignExchangeRegulations/Measure_to_Prevent_Thai%20Baht_Speculation/Pages/Definition_NR.aspx
www.bot.or.th/English/ForeignExchangeRegulations/Measure_to_Prevent_Thai%20Baht_Speculation/Pages/GuidelinesforFinancialInstitutions.aspx
Exchange rate regulation – Residents
A resident corporation that wants to place more than USD 100mn in an onshore foreign-currency deposit account must
document the obligations to pay in foreign currencies within 12 months from the date of deposit.
Source: BoT
Market participants
Corporates
Real-money
funds
Hedge funds
Interbank
30% x Exporters with USD receivables have become less active in forward hedging as THB appreciation has
reversed.
x Importers are increasingly entering into USD-THB forwards, as THB appreciation has reversed.
15% x Bond investors have raised their FX hedge ratios on THB exposure.
x Some regional central banks are investing in the THB through the bond markets.
5% x Hedge funds have limited involvement in the THB due to regulatory concerns.
x Investors with no underlying assets mainly trade THB through short-dated offshore forwards.
50% x Interbank typically trades USD-THB spot to support corporate flows.
Source: Standard Chartered Research
THB REER and NEER – Sharp fall recently
110
The C/A has deteriorated (USD mn per quarter)
C/A
20,000
FDI
Portfolio
Other
REER
BoP
15,000
100
10,000
90
5,000
80
0
NEER
70
-5,000
60
-10,000
50
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
-15,000
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: BIS
Source: IMF
99
Asia
Availability
Daily trading volume
(USD mn)
Average trade size
(USD mn)
Bid/ask spread in THB
onshore
Bid/ask spread in THB
offshore
Outright forwards
Yes
Local Markets Compendium 2014
Thailand
Rates
Asia
Bonds
Issuer
Use of proceeds
Curve span
BoT Bonds
Bank of Thailand
Liquidity management
3-day to 3Y
Common tenors
1Y, 2Y, 3Y
Coupon
Coupon frequency
Day count
Primary market
Auction day
Auction cut-off
Auction results
Auction style
Average issue size
Secondary market
Average trade size
Daily trading volume
Quotation convention
Settlement period
Bid/offer spread
Regulations
Custodian
T-bills
Loan Bonds
Inflation-linked bonds
Ministry of Finance
Fiscal financing
3Y-50Y
10Y
3Y, 5Y, 7Y, 10Y, 15Y,
20Y
Fixed (and 3Y FRN)
Floating
Semi-annual
Act/365
1M
Fixed (3Y and 4Y FRN)
Semi-annual
Tuesday
Zero
NA
Monday
Wednesday
9:30
11:00-11:30
Multiple-price (3 decimals)
THB 2-15bn
THB 5-20bn
THB 20-50bn
THB 200-400mn
THB 7-10bn
2-4bps
THB 300-600mn
THB 50-200mn
THB 5-10bn
Yield (2 decimals)
T+2
2-3bps
Syndication
NA
THB 20-40bn
THB 50-100mn
THB 50mn
5-7bps
Local custodian or Euroclear
Source: Bloomberg, Standard Chartered Research
Steady rise in the government bond market
Quarterly trading turnover ratio – Stabilising
250
8
1.4
7
1.2
200
6
1.0
5
150
0.8
100
0.6
4
THB tn (LHS)
3
USD bn (RHS)
0.4
2
50
0.2
1
0
2001
0
2003
2005
2007
2009
2011
0.0
2001
2013
2003
2005
2007
Source: AsianBondsOnline
Source: AsianBondsOnline
Swaps
Floating-rate reference calculation
Main product
Average daily market volume
Average ticket size
Average bid/offer spread
Term
Liquid up to
Settlement
Coupon frequency
Convention
Floating-rate reference
Floating-rate ticker
Ticker (2Y)
Interest rate swaps
THB 30bn
THB 500mn
2-3bps
1-10Y
1-5Y
T+2
Semi-annual
Act/365
6M THBFIX
THBFIX (Reuters)
TBSWO2 Index (Bloomberg)
Source: Bloomberg, Reuters, Standard Chartered Research
2009
2011
2013
The THBFIX curve is derived from USD SIBOR and USD-THB
spot and forward rates.* The THBFIX represents the implied
cost of borrowing THB by lending USD for the same tenor.
Reuters calculates the fixing and eliminates the upper and lower
quartiles of contributing prices for the average calculation.
Formula:
൜൬൤ͳ ൅
݂‫݀ݓ‬
݀ܽ‫ݏݕ‬
͵͸ͷ
൨ ൈ ൤ͳ ൅ ൬ܵ‫ ܴܱܤܫ‬ൈ
൰൨ െ ͳ൰ ൈ
ൠ ൈ ͳͲͲ
‫ݐ݋݌ݏ‬
͵͸Ͳ
݀ܽ‫ݏݕ‬
* As and when USD SIBOR is discontinued, USD LIBOR may be considered. Source: Reuters
100
Local Markets Compendium 2014
Thailand
Rates
Account opening
Cash account
Euroclear or local bank (non
resident baht account for
securities)
Special requirements
None
Depository account
Euroclear or local custodian
Trading account
Yes
Process duration
Approximately 1-2 weeks
Trade and settlement flowchart
Counterparty
2. Confirmation
3. Settlement and FX Conversion Instruction
4. Money wire (USD)
Global
custodian
8. Settlement Order
5. Settlement & FX conversion instruction
6. Money wire (USD)
Local
custodian
TCH
Clearing &
Settlement
8. Settlement order
10. Debit/credit confirmation
BoT
9. Debit/credit request
7. THB Conversion
Bond A/C
Investor
THB A/C
Investor
safe keeping
A/C
THB A/C
Investor
Counterparty
11. DVP
settlement
(T+2)
Investor
Counterparty
Linked
Linked
Source: Standard Chartered Research
Regulations and taxation
Tax types
Additional notes
Foreign investment regulations Not restricted
Income tax for non-residents
Exempt
MoF announced the removal of the tax exemption for foreigners on
12 October 2010. However, an over-riding law (Revenue code 70)
prohibits tax collection on interest income from T-bills, LBs and BoT
bonds. Hence, interest income on the aforementioned bonds
remains exempt.
Capital gains tax
15% or as DTT
Thailand has DTAs with 57 countries. The UK, Singapore and Hong
Kong are exempt, but the rate for the US is 15%.
Source: Bloomberg, Reuters, Standard Chartered Research
101
Asia
BOT: Bank of Thailand
TCH: Thailand Clearing House
1. Transaction execution
Foreign
investor
Local Markets Compendium 2014
Thailand
Rates
Market participants
Asia
Banks
x Banks must retain 6% of their total deposits in liquid assets – 1% in cash and 5% in government bonds.
x For reserve requirement purposes, banks tend to buy bonds of <5Y.
x Trading books tends to target liquid on-the-run issues.
x Regulated by the BoT (www.bot.or.th)
Contractual savings funds
x Government Pension Fund (GPF) and the Social Security Office (SSO)
x GPF’s asset mix is 80:15:5 between fixed income, equities and property.
x For short-term debt, the GPF benchmarks against the deposit rates of major banks.
x For long-term debt, the GPF benchmarks against Thai BMA 3-10Y bond index.
x GPF (www.gpf.or.th) is regulated by the Ministry of Finance, and SSO (www.sso.go.th) is regulated by the Ministry of Labour.
Insurance companies
x Effective September 2011, insurance companies must adhere to a risk-based capital framework and will therefore strive to
reduce their duration gap.
x The required solvency ratio is 125% and will progressively rise to 150%.
x Insurance companies do not need to disclose their NAVs publicly and are therefore less subject to mark-to-market risk.
x Regulated by the Office of Insurance Commission (www.oic.or.th)
Foreign investors
x Foreign investors cannot hold THB in nostro accounts worth more than THB 300mn unless there is an underlying asset.
x Thus, short-dated bonds have become favourable proxies for foreigners expecting THB FX appreciation.
x Foreign funds tend to invest along the curve, while some regional central banks are also investing in the THB bond market.
Others
x Money-market funds can invest out to a maximum of 1Y.
x Bond funds are not restricted by tenor.
x Mutual funds are subject to mark-to-market risk on a daily basis, as their NAV is publicly available.
x We estimate that an open-ended mutual fund may invest about 70% of its fixed income holdings in 3Y tenors and below, with
a high concentration in 1Y and below.
x Regulated by the Securities and Exchange Commission (www.sec.or.th)
Source: Standard Chartered Research
Ownership by participant for Loan Bonds (THB bn)
900
800
700
600
500
400
300
200
100
0
2004
Ownership by participant for Loan Bonds (%)
50
Pension
40
Pension
30
Banks
Insurance
Foreigners
BoT
Others
NBFI
2006
2008
2010
Insurance
20
0
2004
2012
2006
2008
2010
Source: BoT, Standard Chartered Research
Source: BoT, Standard Chartered Research
Yield curve over time – Steepened in 2013 (%)
Debt profile – Loan bonds (THB bn)
4.5
2013
4.0
End-2010
Banks
BoT
Others
Foreigners
NBFI
10
2012
400
End-2009
350
300
3.5
250
End-2011
3.0
200
End-2012
2.5
150
2.0
100
1.5
50
0
1.0
O/N
1Y
2Y
Source: BoT, Standard Chartered Research
5Y
10Y
2013 2016
2019 2022
2025
Source: BoT, Standard Chartered Research
102
2028 2031
2034 2037 2040
Local Markets Compendium 2014
Thailand
Rates
Commercial banks – Asset growth is rising
Commercial banks – LDR is trending higher
18
Assets
(THB tn)
16
14
96
20
12
90
10
88
10
6
4
3
86
Government
bonds % of
assets
84
y/y growth
(%, RHS)
4
5
92
15
8
6
LDR (%, LHS)
94
5
82
2
2
1
80
0
2006
2007
2008
2009
2010
2011
2012
78
Q1-09
2013
0
Q1-10
Q1-11
Q1-12
Q1-13
Source: BoT, Standard Chartered Research
Source: BoT, Standard Chartered Research
Insurance sector – Strong demand for bonds
Cross-sectional comparison of insurance density (2012)
70
Bond % of
assets (RHS)
1.6
10K
60
1.4
Insurance density (USD)
1.8
50
1.2
1.0
40
0.8
30
Assets
(THB tn)
0.6
20
0.4
0.2
10
0.0
1997
0
CH
MT
KR
TW
MY
TH
CN
100
INID
PHLK
VN
10
SG
AE
PT
1K
USHK NO
BH
OM
LT
TT
UY
SV
PK
BD
1
1999
2001
2003
2005
2007
2009
0
5
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
2011
50
55
60
Source: OIC, Standard Chartered Research
Source: Swiss Re, IMF, Standard Chartered Research
Mutual funds – Fixed income funds dominate (THB tn)
Cross-sectional comparison of mutual funds (2012)
3.0
Equities
Fixed income
Money market
Balanced/mixed
Others
1M
Mutual fund/capita (USD)
IE
2.5
2.0
1.5
1.0
0.5
100K
AU
10K
1K
MA
100
10
2010
2011
700
VN JO
300
0
2004
Bond % of
assets (RHS)
2005
2006
2007
2008
Source: GPF, Standard Chartered Research
5
BW
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
2009
2010
2011
100K
Pension fund/capita (USD)
400
100
RU
50
55
60
65
Cross-sectional comparison of pension funds (2012)
80
78
76
74
72
70
68
66
64
62
60
Assets
(THB bn)
200
AE
Source: ICI, Swiss Re, IMF, Ministry of Finance, central banks
Government pension funds – Stable ownership of bonds
500
BG
2012
Source: AIMC, Standard Chartered Research
600
DE
LT
PA
0
2009
NO
TW
TH
CN
INID
PH
PK
SG
HK
CH US
KR
MY
1
0.0
2008
65
CH
10K
MY
NA
1K
LK TH
PH ID
CN
IN
100
BG
US
HK
SG
NO
TW AT
HU
DE
MT
CS
VN
10
IL
KR JP
FR
GR
UA
1
0
2012
5
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
Source: OECD, FIAP, Swiss Re, IMF, local sources including
pension fund associations, Ministry of Finance, central banks
103
50
55
60
65
Asia
0
2005
Local Markets Compendium 2014
Vietnam
Jennifer Kusuma | Eddie Cheung | Betty Rui Wang
Asia
General
Monetary policy framework
Monetary policy tools
Name
Policy target
Independence
Reserve requirement
Required ratio: 5-8% for USD and 1-3% for VND. The reserve
requirement is used to manage lending growth.
State Bank of Vietnam (SBV)
Inflation target of 8% in 2013
Medium to low, Decree No.
178/2007/ND-CP
Policy rate
Refinance rate
Bloomberg ticker
VNREFINC Index
Deciding body
SBV, with advice from the Premier
and National Financial Supervisory
committee
Policy decision-making The SBV, which reports to the Premier
Decision meeting
Irregular; policy can be changed interfrequency
meeting
Announcement time
NA
Press conference
NA
Minutes published
NA
Open-market
To ensure policy rate maintained,
operations (OMOs)
manage liquidity
Quarterly inflation
SBV publishes annual report on its
report
activities
Source: SBV, Standard Chartered Research
OMOs and reverse repo rate
x The State Bank of Vietnam (SBV) injects and withdraws
VND liquidity daily.
x The SBV lends at the reverse repo rate for 7, 14 or 28 days
and demands government debt as collateral.
Refinance rate and discount rate
x Limited loan quotas for banks with liquidity problems or for
channelling to strategic sectors
x Requires government bonds, credit dossiers or bills as
collateral
Other administrative measures
x Loan growth target (at 12% for 2012) to manage monetary
expansion
x Deposit/lending rate ceiling to control interest rates
Source: Reuters, Standard Chartered Research
Exchange rate framework
Exchange rate regime
Stabilised arrangement (IMF)
Exchange rate target
Loosely pegged to the USD; daily USD-VND trading band is +/-1% around the reference rate
Intervention instruments
Through spot USD-VND
Convertible?
No
Deliverable?
No
Fixing time and place
Spot date, fixing
Spot fixing is at 11:00, Hanoi
Fixing methodology
Spot fixing is based on contributors input before 10:55
Spot date T+2, fixing is 2 days prior to settlement
Source: IMF, Standard Chartered Research
Economic and financial indicators
Real GDP, change
CPI inflation*
Government balances (% of GDP)
2011
2012
2013F
2014F
1
5.9
5.0
5.3
5.8
0
18.6
9.3
7.2
8.2
-5.5
6.4
6.0
6.5
-1
1.3
2.3
3.1
3.2
-2
Fiscal balance/GDP
-2.9
-4.8
-4.0
-4.0
Primary balance/GDP
-1.7
-3.6
-2.7
-2.7
Gen. govt. debt/GDP
47.9
51.3
50.4
50.5
External debt/GDP
37.9
39.0
39.1
38.3
Policy rate***
15.0
9.0
7.0
9.0
BB-
BB-
Current account/GDP
FX res./imports**
S&P
Country
rating
Moody’s
B1
B2
Fitch
B+
B+
*Yearly average; **months of imports; ***year-end;
Source: Moody’s, CEIC, IMF, Standard Chartered Research
-3
60
50
40
General govt.
debt (RHS)
Fiscal balance
-4
30
20
-5
10
-6
-7
0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013F 2014F
Source: IMF, CEIC, Standard Chartered Research
104
Local Markets Compendium 2014
Vietnam
FX
Exchange rate products
Spot
Availability
Daily trading volume
(USD mn)
Average trade size
(USD mn)
Bid/ask spread in VND
onshore*
Bid/ask spread in VND
offshore*
Reuters ticker
Outright forwards
Options
FX swaps
Yes
Yes
800
200
800
1-2
5
NA
5
1M 15, 3M 35, 6M 70, 1Y 155
1M 10, 3M 30, 6M 65, 1Y 150
NA
Asia
NA
*Versus USD; for FX swaps, bid/ask spread refers to swap points vs. USD; Source: Standard Chartered Research
Exchange rate regulation – Non-residents
Underlying asset – Trade and FDI
Underlying asset – Financial asset
No underlying asset
Spot
Forwards*
Options**
FX swaps*
Buy: no restrictions, Sell:
SBV approval required
Not allowed
NA
Not allowed
Not allowed
Buy refers to non-residents (NR) buying VND, whereas Sell refers to NRs selling VND. The forward and FX swap markets are illiquid beyond the 1M tenor.
*’Not allowed’ indicates that only residents are allowed to trade FX forwards, FX swaps and non-VND options onshore.
**Since 23 March 2009, VND options have not been allowed onshore. Standard Chartered does not quote VND options offshore.
For detailed information on FX regulation, please see the SBV website at www.sbv.gov.vn and Decree 160 dated 28 December 2006 .
Exchange rate regulation – Residents
x Residents wishing to purchase offshore assets must apply for a licence with the SBV.
x Purchase/borrowing of foreign currencies is only allowed when backed by a relevant transactional need (i.e., imports of goods).
Source: SBV, Standard Chartered Research
Market participants
Corporates
Real-money
funds
Hedge funds
Interbank
40% x
x
5% x
x
0% x
55% x
x
Corporates typically buy USD-VND given spot illiquidity in forwards and trade deficit.
However, exporters have recently become more active given stabilisation in USD-VND.
Foreign real-money funds are only allowed to access the spot market.
Given the illiquidity of NDFs, they typically leave VND exposure unhedged.
Hedge funds are not involved in the offshore VND market given illiquidity in NDFs.
Historically, interbank players have mainly traded spot given illiquidity in forwards.
Interbank players have recently become more active in forwards and swaps out to the 3M tenor.
Source: Standard Chartered Research
USD-VND – Stabilising
The C/A is improving (USD bn per quarter)
C/A
10
22,000
20,000
FDI
Portfolio
Other
BoP
5
18,000
0
16,000
14,000
-5
12,000
10,000
1994
Source: Bloomberg
-10
1997
2000
2003
2006
2009
2012
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: IMF
105
Local Markets Compendium 2014
Vietnam
Rates
Bonds
VGBs
Issuer
T-bills
Ministry of Finance
Use of proceeds
Asia
VDB Bonds
Vietnam Development
Bank
Development projects
not in the state budget
Fiscal financing
Curve span
2Y-15Y
Common tenors
Coupon
Coupon frequency
Day count
Primary market
Auction day
2-5Y
Fixed
Annual
Act/Act
Thursday
14:00 (PD), 11.30
(investors)
Auction cut-off
Monday
Ad hoc
14:00 (PD), 11.30
(investors)
13:30
Auction results
Auction style
Average issue size
2-5Y
Fixed
Annual
Act/Act
Zero coupon
NA
Act/365
State Bank of Vietnam
Liquidity management
1-week, 2-week, 1M,
2M, 3M, 6M, 1Y
3M, 6M, 1Y
Zero coupon
NA
Act/365
2Y-15Y
1Y
SBV bills
Ad hoc (daily or weekly)
12:00
16:00-17:00
Single-price (2 decimals)
VND 50-200bn, up to
VND 1-2tn
4tn
VND 1-3tn
16:30
VND 1-5tn
Secondary market
Average trade size
VND 50-100bn
Daily trading volume
Quotation convention
Settlement period
Bid/offer spread
Regulations
Custodian
VND 150-200bn
VND 150-200bn
Yield (2 decimals)
T+1
NA
20-50 bps
SBV bills are not
tradable
VND 50-100bn
Not liquid
NA
20-50 bps
Local custodian
SBV
Source: HNX, Bloomberg, Standard Chartered Research
Outstanding bonds appear to have peaked
Quarterly trading turnover ratio – Sporadic activity
700
35
600
30
500
25
400
20
0.3
15
0.2
300
VND tn (LHS)
0.4
10
200
USD bn (RHS)
100
0
2001
0.5
0.1
5
0.0
Sep-09
0
2003
2005
2007
2009
2011
2013
Mar-10
Sep-10
Mar-11
Sep-11
Source: AsianBondsOnline
Source: HNX
Swaps
Floating-rate reference calculation
Main product
Average daily market volume
Average ticket size
Average bid/offer spread
Term
Liquid up to
Settlement
Coupon frequency
Convention
Floating-rate reference
Floating-rate ticker
Ticker (2Y)
Source: Standard Chartered Research
Interest rate swaps
Not liquid
VND 100-200bn
Not liquid
Up to 5Y
Not liquid
T+1
Quarterly/semi-annually
Act/360
3M VNIBOR1
VNIBOR (Reuters)
VNIBOS (Reuters)
Mar-12
Sep-12
Average of mid rates by contributors after eliminating the
highest and lowest 25% of rates. Reuters calculates the
VNIBOR fixing daily at 11:00 and amendments are allowed if
submitted before 12:00. There is a maximum of 8 contributors
and a minimum of 4. If the number of contributions is less
than 7, Reuters will eliminate, at most, the highest and lowest
prices.
Source: Reuters
106
Local Markets Compendium 2014
Vietnam
Rates
Account opening
Cash account
Depository account
Trading account
Process duration
Local custodian
Special requirements
Local custodian
Yes
Approximately 2-3 weeks
Trade and settlement flowchart
1.1. Negotiate the trade details
2.1 Request broker to formalised the
trade details into trading system
Foreign
investor
2.1. Request broker to formalized
the trade details into trading system
Counterparty
Broker
3. Confirmation
(TD afternoon)
3. Confirmation
(TD afternoon)
4. Place orders into
trading system (TD morning and afternoon till 3.00 pm)
6. Settlement instruction
(TD afternoon: 16:00 for settlement
Instruction)
1.2. Execute FX
7. Money wire (USD)
with local
custodian bank for
pre-funding
2.2 Check fund
availability with local
custodian prior to
order placement
Counterparty’s
bank
Stock
exchange
9. Trade dispute/
Settlement Order
(T+1, 08:30)
5. Trading report
(TD afternoon)
Local
custodian
9. Trade dispute/Settlement Order
(T+1, 08:30)
Custodian &
settlement
Investor
safe keeping
A/C
BIDV
10. Debit/Credit Request
Bond A/C
8. VND conversion
Investor
VND A/C
11. Debit/Credit Confirmation
VSD
Clearing
VND A/C
Omnibus a/c
for all foreign
Investors
Counterparty
Mirrored
12. DVP
settlement
(T+1, 13:00-15:00)
Omnibus a/c
for all foreign
Investors
Counterparty
VSD: Vietnam Securities Depository
BIDV: Bank for Investment and Development of Vietnam
Source: Standard Chartered Research
Regulations and taxation
Tax types
Additional notes
Foreign investment regulations Not restricted
Income tax for non-residents
10% on coupon income Corporate income tax of 25% is not applicable to non-residents
Capital gains tax
No capital gains tax
0.1% tax on total proceeds upon sale
Source: Standard Chartered Research
107
Asia
Foreign investors must apply for a Securities Trading Code from the Vietnam Securities Depository. The following documents
are required for the application for a Securities Trading Code:
x Registration form for Securities Trading Code
x Notarised and consularised Certificate of Incorporation or business/investment licence or other legal evidence of
incorporation
x Notarised and consularised Power of Attorney to a local custodian, supported by the notarised company’s authorised
signature list if a company seal is not available
x Other documents (for hedge funds) or as deemed necessary by the Vietnam Securities Depository
Local Markets Compendium 2014
Vietnam
Rates
Market participants
Asia
Banks
x Banks are the largest players in the VGB market, with total asset of VND 5,000tn in 2012.
x Banks cannot use bonds to satisfy reserve requirements.
x Banks can use T-bills, VGBs and VDB bonds as collateral to access liquidity facilities from the SBV, including the OMO
facility, refinance facility and discount facility.
x Banks invest in and actively trade the 0-5Y segment.
x Regulated by the SBV (www.sbv.gov.vn)
Insurance companies
x The insurance industry is growing rapidly from a low base, with a total investment portfolio of about VND 95tn in 2012.
x Life insurance companies invest in the 5-15Y segment of the curve and tend to match the duration of their assets and
liabilities.
x The small size of the local insurance industry hampers the government’s ability to issue long-dated bonds.
x Regulated by the MoF (www.mof.gov.vn)
Asset managers
x The size of the investment industry is still small, at around VND 100tn in 2012.
x Investment funds are mostly focused on the stock market and have limited investments in local government bonds for
diversification purposes.
x Fund management companies are invested in the liquid bonds (2-5Y).
x Regulated by the MoF (www.mof.gov.vn)
Non-residents
x There are no regulatory restrictions on offshore holdings in the bond market.
x Offshore participation in the local-currency bond market is limited, with most offshore funds preferring to invest in the USD
global bonds.
Source: Standard Chartered Research, http://www.thanhniennews.com/2010/pages/20130114-vietnam-insurance-market-carries-potential-despite-downturn.aspx
Ownership by participant (VND tn, as of June 2011)
Commercial banks
Ownership by participant (%, as of June 2011)
Commercial Banks
299.33
Insurance
Insurance
8.43
Finance companies
3.40
Mutual funds
95.21
2.68
Finance companies
1.08
Mutual fund
0.80
2.52
Other Institutions
0.38
Other Institutions
0.12
Securities
0.19
Securities
0.06
Retail investors
0.16
Retail investors
0.05
Source: SBV, Standard Chartered Research
Source: SBV, Standard Chartered Research
Yield curve over time – Falling (%)
Debt profile – Vietnam Government Bonds (VND tn)
13
80
End-2011
70
12
60
End-2009
11
50
End-2010
10
40
End-2012
30
9
2013
20
8
10
0
7
1Y
2Y
3Y
Source: Bloomberg
5Y
7Y
10Y
15Y
2013
2015
Source: Bloomberg
108
2017
2019
2021
2023
2025
2027
Local Markets Compendium 2014
Vietnam
Rates
Commercial banks – Strong asset growth
Commercial banks – Loan growth is declining
6
5
4
45
140
40
130
35
120
30
110
25
3
Assets
(VND qn)
1
2008
2009
2010
2011
12
80
10
5
70
0
60
Q4-07
2012
10
Government
bonds % of
assets
90
15
8
6
Q4-08
Q4-09
Q4-10
Q4-11
Q4-12
Source: Business Monitor International, Reuters
Source: Business Monitor International, Bloomberg
Insurance sector – Strong premium growth (VND tn)
Cross-sectional comparison of insurance density (2012)
10K
45
Insurance density (USD)
40
35
30
25
20
15
KR
TW
1K
MY
TH
CN
100
IN ID
PH
VN
LK
10
USHK NO
SG
AE
PT
BH
OM
LT
TT
UY
SV
PK
BD
10
5
CH
MT
1
0
2005
0
2006
2007
2008
2009
2010
2011
5
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
2012
50
55
60
Source: Swiss Re
Source: Swiss Re, IMF, Standard Chartered Research
Mutual funds – Breakdown of AUM (% of total)
Cross-sectional comparison of mutual funds (2012)
Equities
Fixed Income
Money market
Balanced/Mixed
Others
1M
IE
Mutual fund/capita (USD)
100
80
60
40
100K
10K
INID
PH
PK
Mar-12
AE
LT
BG
RU
PA
VN JO
0
Dec-11
DE
CN
1
0
NO
TW
TH
MA
100
CH US
KR
MY
1K
SG
HK
AU
10
20
Sep-11
5
BW
10
15
Jun-12
20 25 30 35 40 45
GDP PPP/capita (USD '000)
50
55
60
Source: Lipper
Source: ICI, Swiss Re, IMF, Ministry of Finance, central banks
Vietnam Social Securities – Robust asset growth (VND tn)
Cross-sectional comparison of pension funds (2012)
100K
80
Pension fund/capita (USD)
70
60
50
40
30
20
10
0
2001
65
CH
10K
MY
NA
1K
LK TH BG
PH ID
CN
IN
VN
CS
100
IL
KR JP
FR
10
US
HK
65
SG
NO
TW AT
HU
DE
MT
GR
UA
1
0
2002
2003
2004
2005
Source: OECD, Standard Chartered Research
2006
2007
2008
2009
2010
5
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
Source: OECD, FIAP, Swiss Re, IMF, local sources including
pension fund associations, Ministry of Finance, central banks
109
50
55
60
65
Asia
0
2007
14
100
20
y/y growth
(%, RHS)
2
16
LDR (%, LHS)
Local Markets Compendium 2014
Asia
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110
Middle East and North Africa
Local Markets Compendium 2014
Bahrain
Philippe Dauba-Pantanacce
MENA
General
Monetary policy framework
Monetary policy tools
Name
Policy target
Independence
The CBB uses three types of instruments to conduct monetary
policy:
x A foreign exchange facility for buying and selling Bahraini
dinar (BHD) against the US dollar (USD) at rates very close
to the official exchange rate.
x A set of deposit and lending standing facilities in BHD. The
interest rates on these standing facilities are CBB policy
interest rates. CBB policy rates guide short-term interest
rates in the Bahraini money market, and ultimately influence
the deposit and lending rates that banks offer to customers.
The fixed exchange rate regime implies that CBB policy
rates are normally closely aligned with US interest rates.
x The CBB requires retail banks to hold unremunerated
reserves with the CBB. The reserve requirement system
helps to adjust the CBB’s structural liquidity vis-à-vis the
banking sector. The reserve requirement system is not
intended to serve as an active instrument for day-to-day
liquidity management.
Central Bank of Bahrain (CBB)
Exchange rate stability
None; board and head appointed by
royal decree
Policy rate
1-week depo facility, overnight,
overnight repo rate
Bloomberg ticker
BJIR1WDP Index, BJIRO/N Index,
BJIRONRR Index
Deciding body
Royally appointed governor and board
of 7 directors
Policy decision-making NA
Decision meeting
NA
frequency
Announcement time
NA
Press conference
NA
Minutes published
NA
Open-market
NA
operations (OMOs)
Quarterly inflation
NA
report
Source: CBB, Standard Chartered Research
Source: CBB, Standard Chartered Research
Exchange rate framework
Exchange rate regime
Conventional peg (IMF)
Exchange rate target
USD-BHD kept within a band of 0.375-0.377
Intervention instruments
Primarily through spot USD-BHD
Convertible?
Yes
Deliverable?
Yes
Fixing time and place
Spot date, fixing
12:00, Manama
Fixing methodology
NA
T+2
Source: IMF, CBB, Standard Chartered Research
Economic and financial indicators
Government balances (% of GDP)
2011
2012
2013F
2014F
1.9
3.4
4.0
3.7
CPI inflation*
-1.7
3.0
2.8
3.0
Current account/GDP
12.0
10.5
10.0
10.0
3.6
4.3
4.4
4.5
-2.3
-2.5
-3.0
-4.5
Primary balance/GDP
-0.47
-1.4
-2.7
-3.5
Gen. govt. debt/GDP
36.5
33.7
35.7
39.8
External debt/GDP
85.1
87.0
88.0
89.0
1 week depo rate***
0.5
0.5
0.5
0.5
Real GDP, change
FX res./imports**
Fiscal balance/GDP
S&P
Country
rating
Moody’s
Fitch
BBB
BBB
Baa1
Baa1
BBB
BBB
*Yearly average; **months of imports; ***year-end;
Source: IMF, Standard Chartered Research
6
Fiscal balance
General govt.
debt (RHS)
45
40
4
35
2
30
0
25
-2
20
15
-4
10
-6
5
0
-8
2004 2005 2006 2007 2008 2009 2010 2011 2012F 2013F 2014F
Source: CBB, MoF, Standard Chartered Research
112
Local Markets Compendium 2014
Bahrain
FX
Exchange rate products
Spot
Outright forwards
Yes
Availability
Daily trading volume
(USD mn)
Average trade size
(USD mn)
NDFs
Options
FX swaps
Yes
200
200
20
25
Bid/ask spread in BHD
onshore*
1M 0.00005
3M 0.00010
6M 0.00017
12M 0.00032
0.00002
Bid/ask spread in BHD
offshore*
Reuters ticker
25
No
0.3 vol
1Y 0.00030
1M 0.00003
3M 0.00008
6M 0.00015
12M 0.00030
1Y 0.00030
SCFW=
OTC
SCFW=
*Versus USD; for FX swaps, bid/ask spread refers to swap points; Source: Standard Chartered Research
Exchange rate regulation
No restrictions on residents or non-residents
Source: Standard Chartered Research
MENA
Market participants
Corporates
60%
Real-money funds
0%
Hedge funds
0%
Interbank
40%
Source: Standard Chartered Research
BHD REER and NEER – Trending lower
The BoP is highly volatile (USD bn)
C/A
60
130
120
40
FDI
Portfolio
Other
1.5
BoP (RHS)
1.0
110
NEER
100
90
20
0.5
0
0.0
-20
-0.5
80
70
60
1991
Source: IMF
REER
-1.0
-40
1994
1997
2000
2003
2006
2009
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
2012
Source: IMF
113
Local Markets Compendium 2014
Bahrain
Rates
Bonds
Development bonds
T-bills
Sukuk Al Salam
Ijara sukuks
Central Bank of Bahrain on behalf of the kingdom of Bahrain
Fiscal financing
Project financing
6M (BHD), 3Y-10Y
3-7Y (BHD) 10Y (USD)
3M-1Y
3M
(USD, BHD)
Fixed
Zero coupon
Fixed
Fixed/floating
Semi-annual
0
Quarterly
Semi-annual
Act/360
Issuer
Use of proceeds
Curve span
Common tenors
Coupon
Coupon frequency
Day count
Primary market
According to the annual
issuance calendar
Auction day
Auction cut-off
Auction results
Auction style
Monthly (Wednesday)
Monthly (Thursday) for
6M, ad-hoc for longer
tenors
NA
Single-price
Average issue size
MENA
Weekly (3M), monthly
(6M), quarterly (1Y)
Multiple-price
BHD 25mn (3M),
BHD 20mn (6M),
BHD 50mn (1Y)
BHD 50-200mn
Secondary market
Average trade size
Daily trading volume
Quotation convention
Settlement period
Bid/offer spread
Regulations
Custodian
Single-price
BHD 10-20mn (6M),
BHD 18mn
BHD 40-200mn
(3Y-10Y)
NA
Yield (3 decimal points)
T+2
80-100bps
NA
Yield (3 decimal points)
T+2
300-400bps
Central Bank of Bahrain
Source: CBB, Standard Chartered Bank
Size of the government bond market (BHD bn)
1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
2001
Development
bonds
T-bills
Islamic
instruments
2003
2005
2007
2009
2011
Source: CBB
Swaps
Main product
Average daily market volume
Average ticket size
Average bid/offer spread
Term
Liquid up to
Settlement
Coupon frequency
Convention
Floating-rate reference
Floating-rate ticker
Ticker (2Y)
Floating-rate reference calculation
Interest rate swaps
BHD 5mn
BHD 5mn
50bps
5Y
2Y
T+2
Annual fixed vs. 3M floating
Act/360
3M BHIBOR
BHIBOR3M (Bloomberg)
BDSW2 Index (Bloomberg)
Source: Bloomberg, Reuters, Standard Chartered Research
BHIBOR is calculated as the average rate provided by 10 local
banks, with the highest and lowest polled rates removed from
the calculation.
Source: Standard Chartered Research
114
Local Markets Compendium 2014
Bahrain
Rates
Account opening
Cash account
Euroclear or local bank
(BHD or USD)
Special requirements
Depository account
Local custodian
Trading account
Yes
Process duration
Approximately 3-5 days
Foreign investors must obtain a market identification number (MIN) from the Central Registration department of the Bahrain
Bourse in order to open a depository account. Clients also need to open a trading account with a local broker and transfer their
shares into their trading account with the broker before executing sale transactions.
Documentation required to open an account at the Bahrain Bourse:
x Power of attorney (notarised and consularised)
x Memorandum or articles of association, certificate of incorporation, prospectus
Trade and settlement flowchart
Local custodian
Investor’s
sub-account
Local Bank
FX conversion
1. Transaction execution
Foreign
Investor
3. Confirmation
Counterparty
Investor
FCY A/C
Investor
BHD A/C
Settlement and clearing
2. Order match
6. Trading Report
BFX/ BSE
CBB/BCDC
Bond A/C
Investor
Counterparty
7. DVP Settlement
(T+2)
Clearing bank*
CBB: Central Bank of Bahrain
BFX: Bahrain Financial Exchange
BSE: Bahrain Stock Exchange (for Sukuk transactions)
BCDC: BFX Clearing and Depository Corporation
* Standard Chartered Bank
Cash A/C
Investor
Source: BBH Worldview, Standard Chartered Research
115
Counterparty
MENA
4. Settlement Instruction
5. Money Wire and FX & Transfer Instruction
Local Markets Compendium 2014
Bahrain
Rates
Market participants
Banks
x The largest investor in the government bond market, holding about 60-70% of the total outstanding.
x T-bills are eligible as collateral for repurchase transactions with the CBB.
x Conventional and Islamic banks account for over 85% of total financial assets. The conventional segment (86.5% of banking
assets) includes 28 retail banks, 73 wholesale banks, and 12 representative offices of overseas banks.
x The Islamic segment includes 6 retail banks and 20 wholesale banks. While still small, the growth of Islamic banking has been
remarkable. Its total assets rose more than 6-fold between 2003 and 2013, and its market share (of the banking industry)
increased from 1.8% in 2000 to 13.6% in April 2013.
x Regulated by the CBB (http://www.cbb.gov.bh)
MENA
Mutual funds
x Bahrain, as a regional centre, has a range of funds – sponsored by foreign companies – domiciled in the country. Asset
management is likely to be conducted offshore. A key feature of Bahrain’s mutual fund industry is the gap between locally
incorporated funds and the industry at large. AUM of locally incorporated funds represents around 60% of the total for the
mutual fund industry. While locally incorporated funds have 33% of their funds invested in equities, the share jumps to over
60% for the whole industry.
x Total industry assets represented 31% of nominal GDP at the end of 2012.
x Regulated by the CBB (http://www.cbb.gov.bh)
Insurance companies
x About 16% of their investment portfolio is invested in government debt securities while another 47% is invested in “other fixed
income securities”.
x There are 32 conventional insurance firms consisting of 15 locally incorporated firms (including 2 pure reinsurers), 11 foreign
branches (including 3 pure reinsurers), and 6 representative offices of foreign insurance companies.
x The Islamic insurance segment (takaful) has 11 insurance firms including 2 reinsurers.
x Moreover, there are a many other insurance firms with licenses limiting their business to outside Bahrain, including
38 conventional firms and 9 takaful companies. These companies mostly serve other regional markets in the Gulf.
x The sector is relatively underdeveloped, with a penetration rate of about 1.97%. Traditionally in the Gulf, families seek to
mitigate risk through mutual support and assistance. Islamic beliefs are a major deterrent to taking out insurance, especially
life insurance. However, the industry has grown steadily in recent years, mirroring Bahrain’s growth as a financial centre. This
has been supported by increased access to products and services and the government’s commitment to developing the
necessary infrastructure and framework.
x Regulated by the CBB (http://www.cbb.gov.bh)
Source: Standard Chartered Research
Ownership of Government bonds (BHD bn)
2.5
Ownership of government bonds (%)
70
Retail banks
Retail banks
60
2.0
50
1.5
40
Others
(including
islamic banks)
Wholesale
banks
1.0
0.5
0.0
2001
2003
2005
2007
2009
Others
(including
islamic banks)
30
20
Wholesale
banks
10
0
2001
2011
2003
2005
2007
* Investment in government (including securities); Source: CBB statistical bulletin
* Investment in government (including securities); Source: 0
Money-market rates (%)
Debt distribution (BHD bn)
2.0
2011
14
Average
issuance yield
on 3M T-bills
1.5
2009
12
10
8
1.0
6
4
0.5
0.0
Aug-10
Offered
interbank rate
(3-6M)
Feb-11
Source: CBB statistical bulletin
Aug-11
Feb-12
2
0
Aug-12
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Feb-13
Source: Bloomberg, Standard Chartered Research
116
Local Markets Compendium 2014
Bahrain
Rates
Commercial banks – Asset growth is rising
300
Commercial Banks – Government bond ownership as
% of banking assets
40
Assets
(USD bn)
Retail banks
9
8
7
6
5
4
Islamic banks
3
2
Wholesale
1
banks
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
30
250
20
200
10
150
0
-10
y/y growth
(%, RHS)
100
-20
50
-30
-40
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: CBB, Standard Chartered Research
Source: CBB
Insurance funds – Islamic share of the total diminishes
Insurance funds – Breakdown of investment portfolio (%)
BHD bn
70
250
60
200
2011
2010
Conventional
MENA
50
40
150
30
100
50
20
10
Islamic
0
0
2008
2009
2010
Fixed
Income
2011
Deposits
Mutual
Funds
Equity
Others
Real Estate
Source: CBB Statistical Bulletin
Source: CCBB Insurance Market Review; latest edition is for 2011 numbers
Mutual funds – Total investments
Mutual funds – Size of AUM has trended lower lately
BHD bn
BHD mn
Equities
400
Balanced/mixed
Fixed income
Money market
4.0
Others
3.5
3.0
300
2.5
2.0
200
1.5
1.0
100
0.5
0
Mar-11
0.0
Jul-11
Nov-11
Mar-12
Jul-12
Nov-12
Mar-13
Q2-10
Q4-10
Q2-11
Q4-11
Q2-12
Q4-12
Source: Lipper
Source: CBB
Cross-sectional comparison of insurance funds (2012)
Cross-sectional comparison of mutual funds (2012)
CH
MT
100
LB
TR
JO
BH
LT
SG
IE
AE
PT
1K
1M
USHK NO
Mutual fund/capita (USD)
Insurance density (USD)
10K
SA
OM
KW
TT
UY
EG
10
SV
1
100K
AU
MY
5
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
Source: Swiss Re, IMF, Standard Chartered Research
50
55
60
65
BH
TR
LB
EG
100
SA
DE
OM
AE
LT
BG
RU
10
PA
VN JO
0
5
BW
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
Source: OECD, FIAP, Swiss Re, IMF, local sources including
pension fund associations, Ministry of Finance, central banks
117
NO
KW
MA
1
0
CH US
10K
1K
SG
HK
50
55
60
65
Local Markets Compendium 2014
Egypt
Sayem Ali | Nancy Fahim
General
Monetary policy framework
Monetary policy tools
MENA
Name
Policy target
Central Bank of Egypt (CBE)
The CBE is in transition to a fullfledged inflation-targeting regime
Independence
Moderate; ref. Law No. 88 of 2003,
The Law of the Central Bank, the
Banking Sector and Money, Chapter
3, Articles 11 and 12
Policy rate
Overnight deposit and overnight
lending rates
Bloomberg ticker
EGBRDR Index; EGBRLR Index
Deciding body
Monetary policy committee (CBE
governor, 2 deputy governors,
6-member board of directors)
Policy decision-making NA
Decision meeting
On Thursday, c. every 6-7 weeks
frequency
Announcement time
NA
Press conference
NA
Minutes published
On the CBE website following each
MPC meeting
Open-market
CBE instruments introduced in 2005
operations (OMOs)
to manage liquidity in the market
Quarterly inflation
Monthly inflation report on 10th of
report
every month, published by CAPMAS;
brought forward by one day if the 10th
is a Friday
Source: CBE, Standard Chartered Research
Reserve requirement
In May 2012, the required reserve ratio was cut to 10% from
12% to boost liquidity in the domestic banking system. This
followed a 200bps cut in March 2012.
OMOs
x Treasury bonds
x Treasury bills
x Outright sales of CBE notes
x Outright sales of CBE CDs
x Deposits
x Repo
x CBE deposit operation
Standing facilities
The CBE sets the rates on two standing facilities, creating an
interest rate corridor within which the overnight rate can
fluctuate. The overnight lending and overnight deposit
facilities, respectively, create the ceiling and floor of this
interest rate corridor. Managing the overnight interbank rate
within the corridor is the operational target of the CBE.
Source: CBE
Exchange rate framework
Exchange rate regime
Other managed arrangement (IMF)
No target, but CBE has the power to regulate and manage the foreign exchange market;
Law No. 88 of 2003 of the Central Bank, the Banking Sector and Money Chapter 2 Article 6
Primarily through spot USD-EGP
Partially
Yes
NA
T+2
Average of spot rates during the day
Exchange rate target
Intervention instruments
Convertible?
Deliverable?
Fixing time and place
Spot date, fixing
Fixing methodology
Source: CBE, Standard Chartered Research
Economic and financial indicators
Real GDP, change
CPI inflation*
Current account/GDP
FX res./imports**
Fiscal balance/GDP
Primary balance/GDP
Gen. govt. debt/GDP
External debt/GDP
O/N deposit rate
O/N lending rate***
S&P
Country
Moody’s
rating
Fitch
2011
1.80
11.30
-2.60
4.79
-9.80
-4.91
76.56
20.66
9.25
10.25
BB
B2
BB-
2012
2.20
8.70
-3.10
2.60
-10.80
-6.66
80.55
16.41
9.25
10.25
BB2
B+
*Yearly average; **months of imports, ***year-end;
Source: IIF, CBE, Bloomberg, Standard Chartered Research
Government balances (% of GDP)
2013F
2.00
7.70
-2.90
2.77
-11.50
-8.27
88.81
20.51
9.25
10.25
2014F
3.50
8.50
-2.50
3.08
-10.00
-6.65
85.44
23.41
9.25
10.25
0
120
-2
100
-4
80
-6
60
-8
-10
Fiscal balance
General govt.
debt (RHS)
20
-12
0
-14
2004 2005 2006 2007 2008 2009 2010 2011 2012F 2013F 2014F
Source: IIF, CBE, Standard Chartered Research
118
40
Local Markets Compendium 2014
Egypt
FX
Exchange rate products
Availability
Daily trading volume
(USD mn)
Average trade size
(USD mn)
Bid/ask spread in EGP
onshore*
Bid/ask spread in EGP
offshore*
Reuters ticker
Spot
Yes
Outright forwards
NDFs
Yes
200
Options
FX swaps
25
5
2 to 3
NA
NA
0.01
NA
1M 0.03, 3M 0.09, 6M
0.17, 12M 0.30
NA
0.02
NA
*Versus USD; for FX swaps, bid/ask spread refers to swap points; Source: Standard Chartered Research
Exchange rate regulation – Non-residents
Spot
Underlying asset – Trade and FDI
Underlying asset – Financial asset
Forwards
NDFs
Options
FX swaps
NA
No
restrictions
On request
NA
Buy EGP: No restrictions;
Sell EGP: Approval required
No underlying asset
MENA
Buy EGP: No restrictions;
Sell EGP: Not allowed
Exchange rate regulation – Residents
x There is no legal restriction on the convertibility of the EGP into foreign currency (or vice versa), provided that such
conversions are carried out by an Egyptian licensed bank or licensed foreign exchange dealer. Transfers of foreign currency
outside Egypt are permitted, provided they are made through a bank registered with the Central Bank of Egypt. Deliverable
EGP swaps can be traded through a local account with an onshore bank, provided the trade is done on behalf of a corporate
client (documentation to prove this is required).
x On 30 December 2012, the Central Bank of Egypt (CBE) introduced weekly FX auctions to manage the price of the EGP
against the US dollar in the face of weak and falling FX reserves. Since introduction, auction size has averaged USD 45mn.
By July-2013, the CBE also held two exceptional auctions, limiting the sale of USD to support the importation of specific
staple commodities, capital goods, intermediary goods and medical goods. There is no specified exit date to these FX
auctions.
Source: Standard Chartered Research
Market participants
Corporates
Real-money
funds
Hedge funds
Interbank
85% x Fulfil trade-based requirements, mainly on a spot basis.
x Use NDFs to hedge against trade-based future receivables and payables.
5% x Hedge long-term exposure to EGP or Egyptian financial securities, typically on 3M-1Y NDFs or spot.
5% x Hedge long-term exposure to EGP or Egyptian financial securities, typically on 3M-1Y NDFs or spot.
5% x Typically use 3M-1Y NDFs for liquidity or balance-sheet management, as well as to hedge against
receivables and payables on financial instruments.
Source: Standard Chartered Research
EGP REER and NEER for fiscal year ending 30 June
150
140
130
120
110
100
90
80
70
60
50
1994
Source: IIF
Improving, but still negative, BoP (USD bn per quarter)
C/A
8
FDI
Portfolio
Other
6
REER (IIF)
BoP
4
2
0
-2
-4
NEER (IIF)
-6
-8
1997
2000
2003
2006
2009
2012
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: CBE
119
Local Markets Compendium 2014
Egypt
Rates
MENA
Bonds
T-bonds
T-bills
Ministry of Finance (Central Bank of Egypt as fiscal agent)
Fiscal financing
1-10Y
1Y
2Y, 3Y, 5Y, 7Y, 10Y
91-, 182-, 273-, 364-day
Fixed
Zero coupon
Semi-annual
NA
Act/Act
Act/365
Issuer
Use of proceeds
Curve span
Common tenors
Coupon
Coupon frequency
Day count
Primary market
Auction day
Auction cut-off
Auction results
Auction style
Average issue size
Secondary market
Average trade size
Daily trading volume
Quotation convention
Settlement period
Bid/offer spread
Regulations
Custodian
Monday (weekly or biweekly)
Sunday & Thursday
10:00 (Cairo)
15:00
Multiple-price
EGP 1-4bn
0.5mn
EGP 250-300mn
Yield (3 decimals)
T+1
10bps
EGP 0.5-1mn
EGP 1.5bn
Simple yield
T or T+1
20bps
Central Bank of Egypt
Source: CBE, Bloomberg, Standard Chartered Research
Outstanding T-bonds
10Y EGP government bond yield (%)
350
EGP bn (LHS)
300
250
200
USD bn (RHS)
60
17.5
50
17.0
40
16.5
30
16.0
20
15.5
10
15.0
0
14.5
Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13
150
100
50
0
2003
Source: CBE
2004
2005
2006
2007
2008
2009
2010
2011
2012
Source: Bloomberg
120
Local Markets Compendium 2014
Egypt
Rates
Account opening
Cash account
Local bank
Special requirements
Depository account
Local custodian
Trading account
Yes
Process duration
Approximately 4-5 days
The local custodian can assist in applying for the unified trading code from the Egyptian Exchange, which is needed for
transactions on the stock exchange (not applicable to treasury bills). Documentation required to open an account at the
Egyptian Exchange:
x Power of attorney (notarised and consularised)
x Memorandum or articles of association, certificate of incorporation, prospectus
x Accompanying letter on tax considerations
x EGP cash account in the name of the investor
x Disclosures by EFSA (local authority) to be provided by international clients
x Country addendum
Trade and settlement flowchart
Local sub custodian
MENA
4. Settlement Instruction
5. Money Wire and FX & Transfer Instruction
Investor’s
sub-account
7. Order matching
Local Bank
FX conversion
1. Transaction execution
Foreign
Investor
Primary
Dealer (PD)
3. Confirmation
Investor
FCY A/C
Investor
EGP A/C
Settlement and clearing
MCDR
2. Transaction execution
Bond A/C
Investor
PD
8. Bond and cash settlement
instruction (T+1)
EGX
Central Bank of Egypt
6. Trading Report
Cash A/C
EGX: Egyptian Exchange
MCDR: Misr for Clearing, Settlement & Central Registry
Investor
Source: BBH Worldview, Standard Chartered Research
Regulations and taxation
Tax types
Additional notes
Foreign investment regulations NA
NA
Income tax for non-residents
10%
Capital gains tax
20%
Source: Standard Chartered Research
121
PD
Local Markets Compendium 2014
Egypt
Rates
Market participants
Banks
x Banks are the most active participants in the primary and secondary markets for T-bills and T-bonds.
x There are 15 Primary Dealers.
x The Ministry of Finance has begun publishing a Primary Dealers League Table, ranking the performance of the five best
Primary Dealers in both the primary and secondary markets for government securities.
Insurance companies
x Insurance density per capita is low, estimated at USD 21.7
x As a percentage of GDP, the penetration rate is one of the lowest in MENA, estimated at 0.73%.
x Total premium volume rose by 6.1% in 2012, to USD 1.818bn. Non-life premia make up 57% of total volume.
MENA
Pension and social insurance funds
x The role of foreign investors has diminished significantly following political events in Egypt starting in 2011.
x Foreign holdings of T-bills relative to the total amount of T-bills outstanding have fallen to less than half a percent from 21% at
end-2010.
x In March 2013, the CBE launched a Foreign Investors’ Repatriation mechanism. Foreign investors may convert USD into
EGP via the CBE in order to invest in Egyptian securities. The CBE will guarantee the provision of USDs equivalent to the
originally invested amount and the investor’s return on investment for repatriation purposes, if the appropriate documentation
(custodian bank statement of holding) is provided. Investors will be committed to USD-EGP prices quoted by the CBE upon
exit.
Source: MoF, NOSI, CAMPAS, International Organization for Pension Supervisors, Swiss Re, Standard Chartered Research
Ownership of T-bills by participant (EGP bn)
Ownership by participant (%)
300
100
Banks
250
80
200
Banks
60
150
Other NBFI
Insurance
Mutual funds
Others
100
Foreigners
50
0
2005
2006
2007
2008
2009
2010
40
Insurance
Other NBFI
Foreigners
20
Mutual funds
Others
0
2005
2011
2006
2007
2008
2009
2010
Source: CBE, Standard Chartered Research
Source: CBE, Standard Chartered Research
Yield curve over time – Government curve (%)
Debt profile – Outstanding bonds (EGP bn)
16
End-2012
100
15
End-2011
80
2013
60
End-2009
40
2011
14
13
12
11
20
End-2010
10
0
9
3M
Source: Bloomberg
6M
1Y
2013
Source: Bloomberg
122
2015
2017
2019
2021
2023
2025
Local Markets Compendium 2014
Egypt
Rates
Commercial banks – Steady asset growth
Commercial banks – Government securities are taking an
increasing portion of bank assets
1.8
1.6
Assets
(EGP tn)
1.4
30
120
25
100
20
1.2
45
40
LDR (%, LHS)
35
80
30
15
1.0
25
60
0.8
20
10
0.6
y/y growth
(%, RHS)
0.4
5
0.2
0
0.0
2004
-5
2005
2006
2007
2008
2009
2010
2011
Government
bonds % of
assets
40
20
0
Q1-05 Q1-06
2012
15
10
5
0
Q1-07
Q1-08
Q1-09
Q1-10
Q1-11
Q1-12
Q1-13
Source: CBE, Standard Chartered Research
Source: CBE, Standard Chartered Research
Insurance sector – Investments heavily concentrated into
T-bills
Cross-sectional comparison of insurance density (2012)
Investment in government securities
as % of total investments (RHS)
40
10K
75
65
60
30
55
Total investments by insurance
companies (EGP bn)
25
50
100
LB
TR
JO
LT
SG
AE
PT
1K
USHK NO
BH
OM
SA
MENA
35
Insurance density (USD)
70
CH
MT
KW
TT
UY
EG
10
SV
45
1
20
2006
2007
2008
2009
2010
40
2012
2011
0
5
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
50
55
60
Source: Egyptian Financial Supervisory Authority, Standard Chartered Research
Source: Swiss Re, IMF, Standard Chartered Research
Mutual funds – Money markets dominate (USD bn)
Cross-sectional comparison of mutual funds (2012)
Equities
Fixed income
Money market
Balanced/mixed
1M
Others
IE
Mutual fund/capita (USD)
10
8
6
4
2
100K
AU
MY
1K
Source: Lipper Survey
Apr-12
Jul-12
TR
LB
EG
DE
OM
AE
RU
10
PA
VN JO
5
BW
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
Source: ICI, Swiss Re, IMF, Ministry of Finance, central banks
123
NO
LT
BG
0
Jan-12
CH US
KW
BH SA
MA
100
SG
HK
10K
1
0
Oct-11
65
50
55
60
65
Local Markets Compendium 2014
Jordan
Sayem Ali
MENA
General
Monetary policy framework
Monetary policy tools
Name
Policy target
Independence
Certificates of deposit (CDs)
The CBJ uses CDs to influence bank lending and deposit
rates, with the aim of inducing changes in demand for the JOD
relative to the USD and maintaining exchange rate stability.
Central Bank of Jordan (CBJ)
No defined inflation target
Medium, under Central Bank of
Jordan Law No.23 of 1971
Policy rate
1-day repo/deposit
Bloomberg ticker
JORRRATE/CBJEDO/N
Deciding body
Monetary policy committee (all CBJ
officials)
Policy decision-making NA
Decision meeting
Every 6 weeks (8 times a year)
frequency
Announcement time
NA
Press conference
NA
Minutes published
NA
Open-market
To manage liquidity
operations (OMOs)
Quarterly inflation
Released 2nd week of the month
report
Source: CBJ, Standard Chartered Research
Minimum capital requirement
The CBJ maintains minimum capital requirements of JOD
100mn for local banks and JOD 50mn for foreign banks.
OMOs
x Bilateral repurchase operations
x Outright purchase/sale of government securities
x Foreign exchange swaps
Standing facilities
Overnight deposit and lending facilities for banks aimed at
managing liquidity in the banking sector
Source: IMF, CBJ
Exchange rate framework
Exchange rate regime
Conventional peg (IMF)
Exchange rate target
Active FX intervention to maintain peg at 0.70800-0.71000
Intervention instruments
Through spot USD-JOD and sell/buy FX swaps, both onshore and offshore
Convertible?
Yes
Deliverable?
Yes
Fixing time and place
Spot date, fixing
10:40, Amman
Fixing methodology
NA
T+2
Source: IMF, CBJ, Standard Chartered Research
Economic and financial indicators
Real GDP, change
CPI inflation*
Government balances (% of GDP)
2011
2012
2013F
2014F
0
100
2.4
2.9
3.2
3.5
-1
90
4.6
4.8
5.0
5.2
-2
80
-12.0
-14.1
-9.9
-8.0
-3
70
6.1
3.7
4.5
6.0
Fiscal balance/GDP
-6.8
-8.2
-7.5
-6.5
-4
60
Primary balance/GDP
-4.3
-5.6
-4.5
-3.0
Gen. govt. debt/GDP
70.7
80.2
83.8
87.0
-6
External debt/GDP
21.9
22.5
22.3
22.0
-7
4.3
4.8
5.3
5.75
-8
20
BB
BB
-9
10
Moody’s
Ba2
Ba2
Fitch
BB-
BB-
Current account/GDP
FX res./imports**
Policy rate***
S&P
Country
rating
*Yearly average; **months of imports; ***year-end;
Source: CBJ
-5
50
Fiscal balance
General govt.
debt (RHS)
-10
30
0
2004 2005 2006 2007 2008 2009 2010 2011 2012F 2013F 2014F
Source: Ministry of Finance
124
40
Local Markets Compendium 2014
Jordan
FX
Exchange rate products
Spot
Outright forwards
Yes
Availability
Daily trading volume
(USD mn)
200
NDFs
Options
FX swaps
Yes
100
Average trade size
(USD mn)
100
10
10
NA
Bid/ask spread in JOD
onshore*
0.0005
0.01050 (1Y)
Bid/ask spread in JOD
offshore*
Reuters ticker
0.01000 (1Y)
NA
NA
SCFW=
SCFW=
*Versus USD; for FX swaps, bid/ask spread refers to swap points; Source: Standard Chartered Research
Exchange rate regulation – Non-residents
Underlying asset – Trade and FDI
Underlying asset – Financial asset
Spot
Forwards
No restrictions
No restrictions
No underlying asset
NDFs
Options
NA
FX swaps
No restrictions
Not allowed
Exchange rate regulation – Residents
x Interbank participants can freely buy and sell foreign exchange provided they follow the central bank’s Foreign Currency
Instructions.
x Licensed banks may maintain foreign currency up to an amount not exceeding 15% of their total external obligations against
import operations in foreign currency or the equivalent of JOD 1mn, whichever is greater.
x Banks must sell the amounts exceeding the above-mentioned proportion to other licensed banks or to the central bank within
one week of the date of exceeding the limit.
x Licensed banks may buy foreign currency on a forward basis from their clients against the JOD without any ceiling.
x Licensed banks may sell foreign currency on a forward basis to their clients against the JOD without any ceiling.
Source: Standard Chartered Research
Market participants
Corporates
Real-money
funds
Hedge funds
Interbank
80% x Exporters with USD receivables typically sell USD-JOD spot.
x JOD’s de facto peg to USD is the cornerstone of financial stability.
0% x Real-money funds constitute a very small part of the FX market.
0% x Hedge funds have little involvement in JOD due to fear of regulatory changes, liquidity concerns.
20%
Source: Standard Chartered Research
JOD NEER – Follows the USD due to the peg
Widening C/A deficit (USD bn)
110
5
100
4
C/A
3
90
FDI
Portfolio
Other
BoP
2
80
1
0
70
-1
60
50
1994
Source: IMF
-2
-3
1996
1998
2000
2002
2004
2006
2008
2010
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: IMF
125
MENA
For more details, please see CBJ’s website, including the following links: www.cbj.gov.jo/uploads/f_curr_inst.pdf
www.cbj.gov.jo/pages.php, www.cbj.gov.jo/pages.php?menu_id=123&local_type=0&local_id=0&local_details=0&local_details1=0&localsite_branchname=CBJ
Local Markets Compendium 2014
Jordan
Rates
MENA
Bonds
JOD Bonds
Central Bank of Jordan
Fiscal financing
1Y to 5Y
1Y, 2Y, 3Y
NA
Semi-annual
Issuer
Use of proceeds
Curve span
Common tenors
Coupon
Coupon frequency
Day count
Primary market
Auction day
Auction cut-off
Auction results
Auction style
Average issue size
Secondary market
Average trade size
Daily trading volume
Quotation convention
Settlement period
Bid/offer spread
Regulations
Custodian
T-bills
Ministry of Finance
Liquidity management
6M, 12M
Zero
N/A
Act/365
Auction calendar
9:30
11:00-11:30
Multiple-price (3 decimals)
JOD 100mn
JOD 50mn
JOD 5mn
NA
Yield (two decimal places)
T+2
5bps
Local custodian
Source: Bloomberg, Standard Chartered Research
Steady rise of the government bond market
Swaps
10
14
9
12
8
USD bn (RHS)
10
7
6
8
JOD bn (LHS)
5
4
6
3
4
2
2
1
0
2005
0
2006
2007
2008
2009
2010
2011
2012
Source: MoF, Government of Jordan
Cross-currency swaps
(USD/JOD)
Average daily market volume USD 5mn
Average ticket size
USD 5mn
Average bid/offer spread
50bps
Term
3Y
Liquid up to
3Y
Settlement
T+2
Coupon frequency
Quarter fixed vs. quarter floating
Convention
Act/365
Floating-rate reference
USD LIBOR fixed JOD
Floating-rate ticker
NA
Ticker (2Y)
JDUSSW2
Main product
Source: Bloomberg, Reuters, Standard Chartered Research
Regulations and taxation
Tax types
Additional notes
Foreign investment regulations Not restricted
Income tax for non-residents
Same tax treatment as
residents
Capital gains tax
15% or as DTT
Source: Bloomberg, Reuters, Standard Chartered Research
126
Local Markets Compendium 2014
Jordan
Rates
Market participants
Banks
x The Central Bank of Jordan has a cash reserve requirement of 5%, but there are no requirements for banks to hold securities.
x Banks are the largest investors in the bond market but are typically only active in the primary market, where they buy bonds
for their banking books.
x Secondary-market trading is very limited.
x Banks generally buy and hold in the primary market, and the bonds are typically bought via banks’ banking books as opposed
to their trading books.
x Banks account for 80.4% ownership of government bonds/T-bills.
Mutual funds
The mutual fund industry accounts for 17% of total government bond ownership.
Source: MoF, Government of Jordan
Ownership by participant (JOD bn)
Ownership by participant (%)
12
100
Banks
Banks
10
80
8
60
6
40
4
Others
CBJ
0
2006
2007
2008
2009
2010
2011
Others
20
2
CBJ
0
2006
2012
2007
2008
2009
Source: CBJ, Standard Chartered Research
Source: CBJ, Standard Chartered Research
IRS curve – Moving higher (%)
Debt profile of bonds (JOD bn)
8
End-2012
5.0
7
2013
4.0
6
End-2011
3.0
2010
2011
2012
End-2009
2.0
5
End-2010
1.0
4
0.0
3
3M
6M
1Y
Source: Standard Chartered Research
2Y
2013
3Y
Source: CBJ
127
2014
2015
2016
2017
2018
2019
MENA
Insurance companies
x Insurance sector is regulated and supervised by the Insurance Commission (IC), which was created as an administratively
and financially independent organisation in 1999.
x Most of Jordan’s insurance companies are family controlled and listed on the Amman Stock Exchange, except for one US
player.
x The sector was worth JOD 695mn at the end of 2011.
x The market is highly fragmented, with a median market share of 2.8% and only 4 companies with market shares above 5%.
x Jordan has about 28 insurance providers of both life and non-life services. 3 are Takaful (Islamic insurance) providers.
x Insurance penetration is estimated to be in the region of 2.30% as of the latest available data, and is high compared to
regional standards.
x 90% of premia are non-life. Motor insurance is the largest segment of the market, at an estimated 43.2%, followed by medical
at 23.0%, property at 12.5%, life at 9.3%, and marine at 6.0%.
x Compared to developed markets, insurance companies in Jordan are highly exposed to risky assets such as equity and realestate markets (in 2005, ‘high-risk assets’ represented 62% of total assets). The result has been significant volatility in the
sector’s profits. The latest trend seems to point towards a more conservative approach to insurers’ asset mix.
x The low minimum capital requirement (JOD 2mn) partly explains the overcrowded market.
Local Markets Compendium 2014
Jordan
Rates
Commercial banks – Asset growth picks up
Commercial banks – Loan-to-deposit ratio trending higher
70
25
45
40
Assets
(JOD bn)
35
65
20
20
60
30
18
15
25
Government
bonds % of
assets (RHS)
55
20
10
15
10
y/y growth
(%, RHS)
5
0
2005
2006
2007
2008
2009
2010
2011
2012
50
14
5
45
0
40
Q4-08
2013
16
12
Q4-09
Q4-10
Q4-11
Q4-12
Source: CBJ, Standard Chartered Research
Source: CBJ, Standard Chartered Research
Strong demand for bonds from the insurance sector
Cross-sectional comparison of insurance density (2012)
10K
20
600
Insurance density (USD)
Bonds % of
assets (RHS)
500
15
400
300
10
Assets
(JOD mn)
200
5
CH
MT
USHK
1K
100
LB
TR
JO
LT
SG
AE
PT
BH
OM
SA
NO
KW
TT
UY
EG
10
SV
100
0
2000
2002
2004
2006
2008
2010
1
0
2012
0
5
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
50
55
60
Source: Standard Chartered Research
Source: Swiss Re, IMF, Standard Chartered Research
Mutual funds – Diversified funds dominate
Cross-sectional comparison of mutual funds (2012)
65
Mar-11, JOD bn
1M
Others
IE
Mutual fund/capita (USD)
MENA
22
LDR (%)
Balanced/mixed
Money market
Fixed income
Equities
100K
AU
1K
Source: Lipper, World Bank
2
4
6
DE
OM
RU
10
PA
VN JO
5
BW
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
Source: ICI, Swiss Re, IMF, Ministry of Finance, central banks
128
AE
LT
BG
0
8
TR
LB
EG
100
NO
KW
BH SA
MA
1
0
CH US
10K
MY
SG
HK
50
55
60
65
Local Markets Compendium 2014
Jordan
This page is intentionally blank.
MENA
129
Local Markets Compendium 2014
Kuwait
Carla Slim
General
Monetary policy framework
Monetary policy tools
Name
Policy target
Independence
Reserve requirement
Local banks are required to maintain 18% of their Kuwaiti
dinar (KWD) customer deposits in the form of balances with
the CBK, treasury bills and bonds, or any other financial
instruments issued by the CBK.
http://www.cbk.gov.kw/pdf/Superv/Section%202.pdf
MENA
Central Bank of Kuwait (CBK)
Unspecified
Low; CBK Law 32/1968, Section 4,
Articles 18-20
Policy rate
Discount rate
Bloomberg ticker
KIBODISC
Deciding body
Board of directors
Policy decision-making NA
Decision meeting
No less than 8 times a year
frequency
Announcement time
NA
Press conference
NA
Minutes published
NA
Open-market
Public debt instruments to regulate
operations (OMOs)
levels of domestic liquidity
Quarterly inflation
Quarterly bulletin published by CBK;
report
release date not specified
Public debt instruments to regulate domestic liquidity
levels
x Issuance of treasury bills and bonds on behalf of the
Ministry of Finance
x Repo: http://www.cbk.gov.kw/WWW/index.html
Domestic interest rates
The discount rate is the key policy rate and is set by the CBK.
The size of reductions or increases in the discount rate is
mirrored by local banks, which charge interest rates for KWD
lending transactions at the same level as the discount rate.
Source: CBK, Standard Chartered Research
Source: CBK
Exchange rate framework
Exchange rate regime
Conventional peg (IMF)
Exchange rate target
Exchange rate stability
Intervention instruments
Primarily through spot USD-KWD
Convertible?
Yes
Deliverable?
Yes
Fixing time and place
Spot date, fixing
08:00, Kuwait; 10:00 Ramadan timing
Fixing methodology
NA
T+2
Source: CBK, Standard Chartered Research
Economic and financial indicators
Government balances (% of GDP)
2011
2012
2013F
2014F
Real GDP, change
6.3
3.0
3.0
3.5
CPI inflation*
5.0
4.4
2.6
3.7
30.0
40.0
35.0
35.0
Current account/GDP
FX res./imports**
7.1
7.8
8.0
7.9
Fiscal balance/GDP
38.5
43.3
33.4
30.5
Primary balance/GDP
24.0
30.6
28.2
19.5
Gen. govt. debt/GDP
8.8
7.1
6.6
6.3
21.8
18.4
19.2
20.1
2.5
2.5
2.0
2.0
AA
AA
Aa2
Aa2
AA
AA
External debt/GDP
Policy rate***
S&P
Country
rating
Moody’s
Fitch
*Yearly average; **months of imports; ***year-end;
Source: CBK, IIF, Moody’s Investors Service, Bloomberg, Standard Chartered Research
60
16
14
50
General govt.
debt (RHS)
Fiscal balance
40
12
10
30
8
6
20
4
10
2
0
0
2004 2005 2006 2007 2008 2009 2010 2011 2012F 2013F 2014F
Source: IIF, Standard Chartered Research
130
Local Markets Compendium 2014
Kuwait
FX
Exchange rate products
Spot
Availability
Daily trading volume
(USD mn)
Average trade size
(USD mn)
Bid/ask spread in KWD
onshore*
Bid/ask spread in KWD
offshore*
Reuters ticker
Outright forwards
Yes
NDFs
Options
FX swaps
Yes
300
300
10
25
25
NA
0.00020
12M 0.00025
0.4 vol
12M 0.00020
1M 0.00005, 3M 0.00008,
6M 0.00015, 12M 0.00025
SCFW=
NA
1M 0.00003, 3M 0.00006,
6M 0.00010, 12M 0.00020
SCFW= / SCLD
*Versus USD; for FX swaps, bid/ask spread refers to swap points; Source: Standard Chartered Research
Exchange rate regulation – Non-residents
Spot
Underlying asset – Trade and FDI
Underlying asset – Financial asset
No underlying asset
Forwards
No restrictions
NDFs
Options
FX swaps
NA
On request
No restrictions
MENA
Source: Standard Chartered Research
Exchange rate regulation – Residents
x Domestic banks may enter into currency derivative and foreign-currency forward transactions with foreign banks that are
highly rated.
x Domestic banks may only enter into USD-KWD swap transactions on behalf of customers for hedging or trade-based
requirements. Such transactions on the bank’s own account have no restricted tenor.
Source: Standard Chartered Research
Market participants
Corporates
Real-money
funds
Hedge funds
Interbank
70% x Active in both spot and forward markets for currency conversion purposes to cover trade-based
requirements.
x Hedge FX exposures to mitigate fluctuations in the KWD exchange rate.
5% x Typically enter into spot and forward transactions to capture FX and interest rate fluctuations.
5% x Typically enter into spot and forward transactions to capture FX and interest rate fluctuations.
20% x Interbank players utilise spot and forwards to manage their balance-sheet and liquidity needs and to
fulfil the requirements of their corporate customers.
Source: Standard Chartered Research
KWD NEER and REER
130
125
120
115
110
105
100
95
90
85
80
1994
Source: IIF
Sustained current account surpluses (USD bn)
80
C/A
FDI
Portfolio
Other
8
60
REER
6
40
NEER
20
4
0
2
-20
-40
BoP (RHS)
0
-60
-2
-80
1996
1998
2000
2002
2004
2006
2008
2010
2012
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: IMF, CBK quarterly bulletin
131
Local Markets Compendium 2014
Kuwait
Rates
MENA
Bonds
T-bonds
T-bills
Central bank of Kuwait on behalf of government
Fiscal financing
Liquidity management
Issuer
Use of proceeds
Curve span
Common tenors
Coupon
Coupon frequency
Day count
Primary market
Auction day
Auction cut-off
Auction results
Auction style
Average issue size
Secondary market
Average trade size
Daily trading volume
Quotation convention
Settlement period
Bid/offer spread
Regulations
Custodian
1Y-7Y
3M-1Y
Fixed
Semi-annual
Zero coupon
NA
Act/365
Infrequent
Thursday
Sunday
Following Wednesday
Pre-determined
KWD 50-200bn
NA
Multiple-price
KWD 15-100bn
NA
NA
Source: Bloomberg, Standard Chartered Research
Outstanding treasury bonds
Average yields on government securities (%)
3.0
2.5
USD bn (RHS)
2.0
KWD bn (LHS)
9
6
8
5
7
4
6
3
5
1.5
2
4
1.0
0.5
2001
3M T-bills
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
2
2005
2007
2009
2011
Source: CBK
Source: CBK
Swaps
Floating-rate reference calculation
Main product
Average daily market volume
Average ticket size
Average bid/offer spread
Term
Liquid up to
Settlement
Coupon frequency
Convention
Floating-rate reference
Floating-rate ticker
Ticker (2Y)
Source: Standard Chartered Research
Cross currency swaps
KWD 25mn
KWD 25mn
15bps
5Y
2Y
T+2
Quarterly
Act/365
3M USD LIBOR
US0003M Index
KDUSSW2 Index
1Y T-bonds
1
3
2003
6M T-bills
For cross-currency swaps, the floating rate index is USD 3M
LIBOR.
Source: Standard Chartered Research
132
Local Markets Compendium 2014
Kuwait
Rates
Account opening
Cash account
Local bank
Special requirements
Depository account
Local custodian
Trading account
Yes
Process duration
Approximately 2 weeks
Foreign investors need to appoint a sub-custodian, who will assist in opening a cash account and a securities trading and
custody account with the Kuwait Clearing Company (KCC). Documentation required to open an account at the KCC:
x Power of attorney in two languages (notarised and consularised)
x Memorandum or articles of association, certificate of incorporation, prospectus
x Accompanying letter on tax considerations
Trade and settlement flowchart
Local sub-custodian
Investor’s
sub-account
3. Settlement Instruction
4. Money Wire and FX &
Transfer Instruction
5. Match SWIFT
instruction
FX conversion
Investor
FCY A/C
1. Transaction execution
Foreign
Investor
Investor
KWD A/C
Settlement and clearing
Counterparty
2. Confirmation
CBK
Bond A/C
Investor
Counterparty
6. DVP Settlement
(T+2)
CBK
CBK: Central Bank of Kuwait
Cash A/C
Investor
Source: BBH Worldview, Standard Chartered Research
Regulations and taxation
Tax types
Additional notes
Foreign investment regulations Local-currency bonds
Local custody account required
Income tax for non-residents
None
Capital gains tax
20%
Source: Standard Chartered Research
133
Counterparty
MENA
Local Bank
Local Markets Compendium 2014
Kuwait
Rates
Market participants
Banks
x Banks are the largest investors in the bond market but are typically only active in the primary market, where they buy bonds
for their banking books.
x Secondary-market trading is very limited.
Mutual funds
x As of May-13, there are 43 conventional investment companies and 49 operating in accordance with Islamic Shariah Law
x Total assets of conventional investment companies stood at KWD 6.65bn, where domestic and foreign assets make up 23%
and 57% of the total, respectively
x Total assets of Islamic investment companies are at KWD 5bn, with foreign assets making up 36% of the total
x Portfolio investments are predominantly equity-based (80%), 90% of which is domestic.
MENA
Insurance companies
x Insurance premia as a percentage of GDP are very low, at 0.5%. The penetration rate for the Islamic version of insurance,
Takaful, is equally low.
x Insurance premia rose 18.5% to USD 970mn in 2012. Premium volumes in Kuwait are the fourth highest in the GCC,
following the UAE, Saudi Arabia and Qatar.
x Non-life insurance dominates. The low penetration rate and the insurance preference are likely driven by traditional means of
family assistance as well as religious beliefs.
x Life premium volume stood at 18.6% of total 2012 premium volumes in Kuwait
Source: CBK, Swiss Re, Standard Chartered Research
Ownership of T-bills and T-bonds by participant (KWD bn)
Ownership by participant (%)
100
2.5
Local banks
Local banks
2.0
80
1.5
60
1.0
40
20
0.5
Other
0.0
2006
Central bank
2007
2008
2009
2010
2011
Other
Central bank
0
2006
2007
2008
2012
2009
Source: CBK, Standard Chartered Research
Source: CBK, Standard Chartered Research
Yield curve over time – CCS (%)
Debt profile (KWD mn)
1.4
2012
700
End-2011
600
1.0
500
Jul-13
0.8
2011
800
End-2010
1.2
2010
400
0.6
300
0.4
200
End-2012
100
0.2
0
0.0
1Y
Source: Bloomberg
2Y
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
3Y
Source: Bloomberg
134
Local Markets Compendium 2014
Kuwait
Rates
Commercial banks – Ongoing recovery in asset growth
60
50
Assets
(KWD bn)
140
20
20
80
10
60
8
6
40
0
10
2006
2007
2008
2009
2010
2011
0
Q1-06
2012
4
Government
bonds % of
assets
20
-10
2005
10
LDR (%, LHS)
100
y/y growth
(%, RHS)
30
12
120
30
40
0
2004
Commercial banks – Loan-to-deposit ratio is trending lower
40
2
0
Q1-07
Q1-08
Q1-09
Q1-10
Q1-11
Q1-12
Q1-13
Source: CBK, Standard Chartered Research
Source: CBK, Standard Chartered Research
Insurance funds – Insurance premium is rising (KWD mn)
Cross-sectional comparison of insurance density (2012)
10K
250
200
150
100
CH
MT
100
LB
TR
JO
LT
SG
AE
PT
1K
USHK NO
BH
OM
SA
KW
MENA
Insurance density (USD)
300
TT
UY
EG
10
SV
50
1
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
0
5
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
50
55
60
Source: Swiss Re, Standard Chartered Research
Source: Swiss Re, IMF, Standard Chartered Research
Mutual funds – Equities dominate (USD bn)
Cross-sectional comparison of mutual funds (2012)
7
Equities
Fixed income
Money market
Balanced/mixed
1M
Others
IE
Mutual fund/capita (USD)
6
5
4
3
2
100K
AU
MY
1K
Source: Lipper Survey
Apr-12
Jul-12
OM
PA
VN JO
5
BW
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
Source: ICI, Swiss Re, IMF, Ministry of Finance, central banks
135
AE
RU
10
0
Jan-12
DE
LT
BG
1
0
TR
LB
EG
NO
KW
BH SA
MA
100
SG
HK
CH US
10K
1
Oct-11
65
50
55
60
65
Local Markets Compendium 2014
Lebanon
Philippe Dauba-Pantanacce
MENA
General
Monetary policy framework
Monetary policy tools
Name
Policy target
Independence
Banque du Liban controls bank liquidity by:
x Adjusting discount rates
x Intervening in the open market
x Deciding on credit facilities provided to banks and financial
institutions
Banque du Liban (BdL)
CPI inflation below 5% (soft target)
Moderate (‘autonomy’). Defined under
the Code of Money and Credit
promulgated on 1 August 1963, by
Decree no. 13513.
Policy rate
21-day repo
Bloomberg ticker
LREPRR Index
Deciding body
Central council. Members: governor,
4 vice governors comprising ex-officio
senior members of the Ministry of
Economy and one from Finance
Policy decision-making NA
Decision meeting
NA
frequency
Announcement time
NA
Press conference
NA
Minutes published
NA
Open-market
Preserving the peg while pursuing
operations (OMOs)
domestic de-dollarisation
Quarterly inflation
NA
report
Source: BdL, Standard Chartered Research
BdL imposes reserve requirements on banks’ assets and/or
loans, and penalties in case of shortfalls. Investment in T-bills
may be considered by BdL as part of the reserve requirement.
BdL imposes reserve requirements on banks’ assets and/or
loans, and penalties in case of shortfalls. Investment in T-bills
may be considered by BdL as part of the reserve requirement.
Source: BdL, Standard Chartered Research
Exchange rate framework
Exchange rate regime
Stabilised arrangement (IMF)
Exchange rate target
USD-LBP kept within a band of 1,501-1,514
Intervention instruments
Mainly through spot USD-LBP
Convertible?
Yes
Deliverable?
Yes
Fixing time and place
Spot date, fixing
NA
Fixing methodology
NA
T+2
Source: IMF, BdL, Standard Chartered Research
Economic and financial indicators
Government balances (% of GDP)
2011
2012
2013F
2014F
Real GDP, change
1.5
1.5
2.0
4.0
CPI inflation*
3.1
6.4
5.5
5.0
-17.5
-18.0
-16.0
-10.0
FX res./imports**
10.3
10.5
10.0
9.8
Fiscal balance/GDP
-7.5
-7.5
-10.0
-7.0
1.0
0.4
0.2
0.0
Current account/GDP
Primary balance/GDP
Gen. govt. debt/GDP
137.5
139.5
141.3
141.6
External debt/GDP
158.0
159.0
163.0
163.0
10.0
10.0
10.0
10.0
B
B
B1
B1
B
B
Policy rate***
S&P
Country
rating
Moody’s
Fitch
*Yearly average; **months of imports; ***year-end;
Source: BdL, IIF, IMF, Standard Chartered Research
0
200
180
-2
160
-4
140
120
-6
100
-8
80
General govt.
debt (RHS)
-10
Fiscal balance
-12
40
20
0
-14
2004 2005 2006 2007 2008 2009 2010 2011 2012F 2013F 2014F
Source: IMF, Standard Chartered Research
136
60
Local Markets Compendium 2014
Lebanon
FX
Exchange rate products
Spot
Yes
Availability
Daily trading volume
(USD mn)
Average trade size
(USD mn)
Bid/ask spread in LBP
onshore*
Bid/ask spread in LBP
offshore*
Reuters ticker
Outright forwards
NDFs
Options
FX swaps
150
0.25
NA
2
NA
SCLB
*Versus USD; for FX swaps, bid/ask spread refers to swap points; Source: Standard Chartered Research
Exchange rate regulation
No restrictions on residents or non-residents
Source: Standard Chartered Research
Market participants
Real-money funds
5%
Hedge funds
5%
MENA
Corporates
60%
Interbank
30%
Source: Standard Chartered Research
Lebanon NEER – Depreciation, then stabilisation
The C/A is deteriorating (USD bn per year)
130
20
120
15
C/A
FDI
Portfolio
Other
110
BoP
10
100
90
5
80
0
70
60
-5
50
40
1991
-10
1994
1997
Source: IMF via Bloomberg
2000
2003
2006
2009
2012
2005
Source: BdL
137
2006
2007
2008
2009
2010
2011
2012
Local Markets Compendium 2014
Lebanon
Rates
Bonds
MENA
T Bonds
Issuer
Use of proceeds
Curve span
Common tenors
Coupon
Coupon frequency
Day count
Primary market
Auction day
Auction cut-off
Auction results
Auction style
Average issue size
Secondary market
Average trade size
Daily trading volume
Quotation convention
Settlement period
Bid/offer spread
Regulations
Custodian
T-bills
MoF
Fiscal financing
2-5Y (occasionally 7Y)
2Y, 3Y, 5Y
Fixed
Semi-annual
Act/364
1Y
3M, 6M, 1Y
Zero coupon
NA
Act/365
Monday
11:00
Tuesday value Thursday
NA
LBP 700bn
LBP 400bn
LBP 15bn
NA
Yield
Simple yield
T+2
50bps
Banque du Liban
Source: Bloomberg, Standard Chartered Research
Local-currency government debt – Rising
26
55
50
24
FX debt in
USD bn (RHS)
45
22
20
40
18
35
16
30
Local currency
debt in LBP tn
(LHS)
25
20
2005
2006
2007
2008
14
12
2009
2010
2011
10
2012
Source: MoF
138
Local Markets Compendium 2014
Lebanon
Rates
Account opening
Cash account
Local bank
Special requirements
None
Depository account
Local custodian
Trading account
Yes
Process duration
Approximately 1 week
Trade and settlement flowchart
Local custodian
4. Settlement Instruction
5. Money Wire and FX & Transfer Instruction
Omnibus account
Local Bank
FX conversion
1. Transaction execution
Investor
FCY A/C
Counterparty
3. Confirmation
Investor
USD A/C
Settlement and clearing
2. Order match
MIDCLEAR
Bond A/C
Investor
BSE
6. Trading Report
Counterparty
7. DVP Settlement
(T+3)
BDL
BSE: Beirut Stock Exchange
MIDCLEAR: Custodian and Clearing Center of Financial Instruments for Lebanon
and the Middle East
BDL: Banque du Liban (central bank of Lebanon)
Source: BBH Worldview, Standard Chartered Research
Regulations and taxation
Tax types
Additional notes
Foreign investment regulations NA
Income tax for non-residents
Same as residents;
maximum slab rate is
14%
Capital gains tax
10%
Source: Not given
139
Cash A/C
Investor
Counterparty
MENA
Foreign
Investor
Local Markets Compendium 2014
Lebanon
Rates
Market participants
Banks
x Banks are the largest investors in the bond market but are typically only active in the primary market, where they buy bonds
for their banking books
x Secondary-market trading is very limited.
x Banks buy across the curve, but are most active in the longer tenors (3Y-5Y).
MENA
Mutual funds
x The mutual fund industry is very underdeveloped. A handful of funds invest in all asset classes.
Insurance companies
x Regulating bodies: Insurance Control Commission (ICC, Ministry of Economy & Trade) – monitoring and regulation of the
insurance sector; Directorate of Insurance Affairs (Ministry of Economy and Trade) – collection of fees and penalties, review
of licences
x Minimum regulatory capital requirement: USD 1.5mn, with additional guarantee funds for each branch.
x Investment restrictions: Life insurance companies are required by law to invest 50% of their assets in onshore investments
(principally treasury bills and time deposits).
x There are no investment restrictions on other types of insurance companies (such as non-life).
x Risk-based capital requirements: solvency margin (min. 10%) and admitted assets ratio are enforced by the regulator. The
risk-based capital framework is the percentage of the ‘technical reserve’ that should be in cash or in bank accounts; it is 10%
for the life branch and 20% for the non-life branch. There are no constraints related to duration gap : the technical reserve
and additional guarantees (investment guidelines restrictions) are deemed sufficient.
Source: Standard Chartered Research
Ownership by participant (LBP tn)
Ownership by participant (%)
30
70
25
20
Commercial
banks
60
Commercial
banks
50
40
15
BdL
30
BdL
10
20
Others
5
0
2005
2006
2007
2008
2009
2010
2011
Others
10
0
2005
2012
2006
2007
2008
2009
2010
Source: MoF, Standard Chartered Research
Source: MoF, Standard Chartered Research
Government yield curve over time – Rising again (%)
Local-currency debt outstanding (LBP tn)
8
2012
8
End-2009
7
2013
7
2011
6
5
6
4
5
End-2012
2
End-2010
4
3
3
1
End-2011
3M 6M
0
1Y
Source: Bloomberg
2Y
3Y
4Y
5Y
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Source: Bloomberg
140
Local Markets Compendium 2014
Lebanon
Rates
Commercial banks – Asset growth is stabilising
Commercial banks – LDR is trending higher
250
25
200
Assets
(LBP bn)
Government
bonds % of
assets (RHS)
45
20
150
35
50
30
30
40
25
15
35
100
10
y/y growth
(%, RHS)
50
0
2005
2006
2007
2008
2009
2010
2011
2012
20
5
30
0
25
Q4-99
2013
LDR (%)
15
Q4-01
Q4-03
Q4-05
Q4-07
Q4-09
Q4-11
Source: BdL, Standard Chartered Research
Source: BdL, Standard Chartered Research
Insurance fund premia are on the rise (LBP bn)
Cross-sectional comparison of insurance density (2012)
10K
2,000
1,500
1,000
CH
MT
100
LB
TR
JO
LT
SG
AE
PT
1K
USHK NO
BH
OM
SA
KW
MENA
Insurance density (USD)
2,500
TT
UY
EG
10
SV
500
1
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
0
5
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
50
55
60
Source: Swiss Re, Standard Chartered Research
Source: Swiss Re, IMF, Standard Chartered Research
Mutual funds – Fixed income has collapsed (LBP tn)
Cross-sectional comparison of mutual funds (2012)
1.2
Equities
Balanced/mixed
Fixed income
Money market
Others
1M
Mutual fund/capita (USD)
IE
1.0
0.8
0.6
0.4
0.2
0.0
Dec-09
100K
AU
MY
1K
MA
Source: Lipper, World Bank
Jun-11
Dec-11
Jun-12
DE
OM
LB
RU
10
PA
VN JO
5
BW
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
Source: ICI, Swiss Re, IMF, Ministry of Finance, central banks
141
AE
LT
BG
0
Dec-10
NO
KW
BH SA
TR
EG
100
SG
HK
CH US
10K
1
Jun-10
65
50
55
60
65
Local Markets Compendium 2014
Oman
Carla Slim
MENA
General
Monetary policy framework
Monetary policy tools
Name
Policy target
Independence
Certificates of deposit (CDs)
The CBO uses CDs to mop up excess liquidity from the
banking sector and control money-market liquidity. CDs can
be used by holding banks to obtain funds from the CBO
through repos/buybacks, as well as for interbank repo
transactions.
Central Bank of Oman (CBO)
No defined inflation target
Low under the Banking Law 1974,
amended by Royal Decree No. 114 in
2000
Policy rate
1-day repo
Bloomberg ticker
OCBOREPO
Deciding body
Monetary policy committee (all CBO
officials)
Policy decision-making NA
Decision meeting
Rates set by weekly auction of CDs
frequency
Announcement time
NA
Press conference
NA
Minutes published
NA
Open-market
To manage liquidity
operations (OMOs)
Quarterly inflation
NA
report
Source: CBO, Standard Chartered Research
Minimum capital requirement
CBO maintains minimum capital requirements of OMR 20mn
for local banks and OMR 3mn for foreign banks.
Reserve requirement
Banks are required to keep 40% of their demand/saving
deposits and 30% of their time deposits with the central bank
at all times.
Open-market operations (OMOs)
x Bilateral repurchase operations
x Outright purchase/sale of government securities
x Foreign exchange swaps
Source: IMF, CBO
Exchange rate framework
Exchange rate regime
Conventional peg (IMF)
Exchange rate target
USD-OMR kept within a band of 0.3840-0.3850
Intervention instruments
Through spot USD-OMR and sell/buy FX swaps, both onshore and offshore
Convertible?
Yes
Deliverable?
Yes
Fixing time and place
Spot date, fixing
NA
Fixing methodology
NA
T+2
Source: IMF, CBO, Standard Chartered Research
Economic and financial indicators
2011
Government balances (% of GDP)
2012
2013F
Real GDP, change
4.5
8.3
4.5
4.0
CPI inflation*
4.0
3.0
2.6
3.5
10.0
12.0
7.5
7.0
FX res./imports**
5.1
5.2
5.3
Fiscal balance/GDP
9.1
4.5
Primary balance/GDP
9.8
Gen. govt. debt/GDP
5.5
External debt/GDP
Policy rate***
Current account/GDP
S&P
Country
rating
16
2014F
General govt.
debt (RHS)
Fiscal balance
14
9
8
12
7
5.4
10
6
5.7
4.0
8
5
5.2
6.4
4.7
6
4
6.0
7.0
7.9
3.8
4.0
4.4
4.8
4
3
2.0
1.0
1.0
–
2
2
0
1
A
A
Moody’s
A1
A1
Fitch
NR
NR
*Yearly average; **months of imports; ***year-end;
Source: CBO
-2
0
2007
2008
Source: Ministry of Finance
142
2009
2010
2011
2012F
2013F
2014F
Local Markets Compendium 2014
Oman
FX
Exchange rate products
Spot
Availability
Daily trading volume
(USD mn)
Average trade size
(USD mn)
Bid/ask spread in OMR
onshore*
Bid/ask spread in OMR
offshore*
Reuters ticker
Outright forwards
Yes
NDFs
Options
FX swaps
Yes
200
300
10
25
25
NA
0.00003
0.00023 1Y
0.1
NA
0.00020 1Y
NA
SCFW=
NA
SCFW=
*Versus USD; for FX swaps, bid/ask spread refers to swap points; Source: Standard Chartered Research
Exchange rate regulation – Non-residents
Underlying asset – Trade and FDI
Underlying asset – Financial asset
No underlying asset
Spot
Forwards
NDFs
No restrictions
No restrictions
Options
NA
FX swaps
No restrictions
Not allowed
MENA
For more details, please check the link below at the CBJ website: www.cbo-oman.org/
http://www.cbo-oman.org/Rules/RTGS.pdf
http://www.cbo-oman.org/circulars/crclrs_1till932.pdf
Exchange rate regulation – Residents
x Forward and derivative contracts should only be entered into for trade-related purposes – no speculation is permitted.
x Domestic banks are subject to central bank regulation restricting the types of derivative structures that can be entered into.
x Domestic banks can only borrow FX with CBO approval and with the following limits: short-term (maturity up to 2Y), 100% of
their ‘net worth’; medium-term (2-5Y), 200% of net worth; and long-term (5Y+), 300% of net worth.
x Licensed banks are allowed to maintain foreign currencies up to an amount not exceeding 15% of their total external
obligations against import operations in foreign currency or the equivalent of OMR 1mn, whichever is greater.
x The bank must sell the amounts that exceed the above-mentioned proportions to other licensed banks or to the central bank
within one week of the date of exceeding the limit.
x Licensed banks may buy foreign currency on a forward basis from their clients against the OMR without any ceiling.
x Licensed banks are allowed to sell FX on a forward basis to their clients against the OMR without any ceiling.
Source: Standard Chartered Research
Market participants
Corporates
Real-money
funds
Hedge funds
Interbank
80% x Exporters with USD receivables typically sell OMR-USD spot; OMR’s de facto peg to USD is the
cornerstone of financial stability.
0% x Real-money funds constitute a very small part of the FX market.
0% x Hedge funds have little involvement in OMR due to fear of regulatory changes, liquidity concerns.
20% x Active interbank market, with prices dealing out to 3Y and longer tenors available on request. Market
can digest USD 200mn.
Source: Standard Chartered Research
OMR NEER – Stable
Oil boosts the current account (USD bn)
C/A
10
110
105
FDI
Portfolio
Other
BoP
5
100
0
95
90
-5
85
-10
80
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Source: IMF
Dec-05
Source: IMF
143
Dec-07
Dec-09
Dec-11
Jun-12
Dec-12
Local Markets Compendium 2014
Oman
Rates
MENA
Bonds
OMR Bonds
Ministry of Finance
Fiscal financing/liquidity management
3Y-5Y
3-5Y
Issuer
Use of proceeds
Curve span
Common tenors
Coupon
Coupon frequency
Day count
Primary market
Auction day
Auction cut-off
Auction results
Auction style
Average issue size
Secondary market
Average trade size
Daily trading volume
Quotation convention
Settlement period
Bid/offer spread
Regulations
Custodian
CDs
Central Bank of Oman
Fiscal financing
3M, 6M, 12M
6M, 12M
Fixed
Semi-annual
Monthly
Act/365
Auction calendar
Weekly
NA
Multiple-price (3 decimals)
OMR 50mn
OMR 100-500mn
OMR 25-50mn
Illiquid
Illiquid
Yield (two decimal places)
T+2
5bps
Local custodian
Source: CBO, Standard Chartered Research
Development bonds recover post global recession
1.0
3.0
0.8
2.5
OMR bn (LHS)
0.6
2.0
1.5
0.4
1.0
0.2
0.0
2001
USD bn (RHS)
0.5
0.0
2003
2005
2007
2009
2011
Source: CBO
Swaps
Main product
Average daily market volume
Average ticket size
Average bid/offer spread
Term
Liquid up to
Settlement
Coupon frequency
Convention
Floating-rate reference
Floating-rate ticker
Ticker (2Y)
Floating-rate reference calculation
Cross-currency swaps
OMR 5mn
OMR 5mn
15bps
3Y
2Y
T+2
Annual fixed vs. 3M LIBOR
Act/360
28D CD, USD 3M LIBOR
OMCDFIX1M (Reuters)
OMANCD (Bloomberg)
Source: Reuters, Bloomberg, Standard Chartered Research
For cross-currency swaps, the floating-rate index is USD 3M
LIBOR
Source: Standard Chartered Research
144
Local Markets Compendium 2014
Oman
Rates
Account opening
Cash account
Euroclear or local bank
Depository account
Trading account
Yes
At the Muscat Clearing and
Depository (MCD, subaccounts are not recognised)
and with a local sub-custodian
Process duration
Approximately 1 week
Special requirements
Foreign investors must obtain a market identification number (MIN) from the Central Registration department of the Oman
Exchange and open a depository account
Documentation required to open an account at the Muscat Securities Market (MSM):
x Power of attorney (notarised and consularised)
x Memorandum or articles of association, certificate of incorporation, prospectus
Trade and settlement flowchart
Local custodian
4. Settlement Instruction
5. Money Wire and FX & Transfer Instruction
Investor’s
sub-account
Local Bank
FX conversion
1. Transaction execution
Foreign
Investor
Counterparty
3. Confirmation
Investor
FCY A/C
Investor
OMR A/C
Settlement and clearing
MCD
2. Order match
Bond A/C
Investor
MSM
6. Trading Report
Counterparty
8. DVP Settlement
(T+2)
CBO - RTGS
Cash A/C
MSM: Muscat Securities Market
MCD: Muscat Clearing and Depository
CBO: Central Bank of Oman
Investor
Source: BBH Worldview, Standard Chartered Research
Regulations and taxation
Tax types
Additional notes
Foreign investment regulations For local-currency
bonds
Currently requires local custody account
Income tax for non-residents
None
Capital gains tax
12%
Source: Standard Chartered Research
145
Counterparty
MENA
7. Send trade contract
Local Markets Compendium 2014
Oman
Rates
Market participants
Banks
x Banks must keep 40% of their demand deposits and 30% of their time deposits with the central bank at all times. This can be
made up of cash, bonds, CDs and T-bills.
x Secondary-market trading is very limited.
x Banks generally buy and hold in the primary market, and the bonds are typically bought via banks’ banking books as opposed
to their trading books.
x Banks account for 74% ownership of government bonds, and 100% ownership of CDs.
x Banks’ holdings of government paper are primarily in the 5Y and 3M tenors.
x Banks’ portfolios are fairly diversified, and investment in domestic and foreign securities has increased in the last 4 years.
MENA
Mutual funds
x The mutual fund industry is very underdeveloped.
x The industry accounts for 2% of total government bond ownership.
Insurance companies
x The insurance sector is very underdeveloped in most MENA oil-producing countries. Traditionally, families seek to mitigate
risk through mutual support and assistance. Islamic beliefs are also a major deterrent to taking out insurance, especially life
insurance.
x Even the Islamic version of insurance – Takaful – has a very low penetration rate (around 1.5%) in the Gulf, according to a
recent study. Most GCC countries have government safety nets, which also reduces the need for risk-mitigating instruments.
Insurance in general has a very low penetration in the Middle East.
x Insurance companies account for 3% of total government bond ownership.
Pension funds
x State-owned pension funds invest one-third of their funds in government securities; the rest is diversified among mutual funds,
equities and fixed-term deposits.
x Pension funds account for 20.3% ownership of bonds.
Source: Standard Chartered Research
Ownership by participant (OMR mn)
Ownership by participant (%)
500
100
Banks
Banks
Non-financial
institution
400
80
300
200
Non-financial
institutions
60
Govt. bodies
40
Pension
Foreigners
Others
100
0
2004
Source: CBO
Individual
2005
2006
2007
2008
2009
2010
2011
Govt. bodies
Foreigners
Others
20
Pension
Individual
0
2004
2012
Source: CBO
146
2005
2006
2007
2008
2009
2010
2011
2012
Local Markets Compendium 2014
Oman
Rates
Commercial banks – asset growth has fallen
Strong credit growth is giving rise to high LDRs (%)
25
16
14
110
20
10
100
15
y/y growth
(%, RHS)
8
6
5
Jun-11
Dec-11
Jun-12
70
60
Q1-07
0
Jun-13
Dec-12
Government
bonds % of
assets
80
2
Dec-10
2.5
90
10
4
0
Jun-10
3.0
LDR (%, LHS)
Assets
(OMR bn)
12
120
2.0
1.5
Q1-08
Q1-09
Q1-10
Q1-11
Q1-12
Q1-13
Source: CBO, Standard Chartered Research
Source: CBO, Standard Chartered Research
Insurance funds – Steady rise in premium collection
Cross-sectional comparison of insurance density (2012)
(OMR mn)
10K
350
250
200
150
100
CH
MT
1K
USHK NO
SG
AE
PT
BH
100
LB
TR
JO
LT
OM
SA
KW
MENA
Insurance density (USD)
300
TT
UY
EG
10
SV
50
1
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
0
5
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
50
55
60
Source: Swiss Re, Standard Chartered Research
Source: Swiss Re, IMF, Standard Chartered Research
Mutual funds – Equities dominate (USD mn)
Cross-sectional comparison of mutual funds (2012)
600
Equities
Fixed income
Money market
Balanced/mixed
1M
Others
Mutual fund/capita (USD)
IE
500
400
300
200
100
100K
AU
MY
1K
Source: Lipper
Apr-12
Jul-12
TR
LB
EG
DE
OM
AE
RU
10
PA
VN JO
5
BW
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
Source: ICI, Swiss Re, IMF, Ministry of Finance, central banks
147
NO
LT
BG
0
Jan-12
CH US
KW
BH SA
MA
100
SG
HK
10K
1
0
Oct-11
65
50
55
60
65
Local Markets Compendium 2014
Qatar
Shady Shaher
MENA
General
Monetary policy framework
Monetary policy tools
Name
Policy target
Independence
Policy rate
Bloomberg ticker
Deciding body
Policy decision-making
Decision meeting
frequency
Announcement time
Press conference
Minutes published
Open-market
operations (OMOs)
Quarterly inflation
report
Qatar Central Bank (QCB)
Pegged FX policy
Low
Overnight deposit/lending/repo rate
QAIRONDR, QAIRONLR, QAIRRR
Qatar Central Bank
Qatar Central Bank
Ad hoc
Reserve requirements
x Banks maintain compulsory reserves with the QCB equal to
a certain percentage of their average total deposits.
x The ratio is calculated based on average total daily deposits
from the 16th day of each month to the 12th day of the
following month.
x The amount of approved reserves applies at the start of the
15th day of each month. These reserve amounts are noninterest-bearing and are in QAR.
Ad hoc
None
None
T-bill issuance (monthly, 3M, 6M, 9M,
QAR 4bn)
None
Monetary policy tools include the following:
x Certificates of deposit
x QCB rate
x Qatar money rates – QMR
x QMR deposit rate
x QMR lending rate
x Open-market operations
x Repo operations
x Discount window
Source: QCB, Standard Chartered Research
Source: Standard Chartered Research
Exchange rate framework
Exchange rate regime
Conventional peg (IMF)
Exchange rate target
USD-QAR kept within a band of 3.6385-3.6415
Intervention instruments
NA
Convertible?
Yes
Deliverable?
Yes
Fixing time and place
Spot date, fixing
NA
Fixing methodology
NA
T+2
Source: QCB, IMF, Standard Chartered Research
Economic and financial indicators
Real GDP, change
CPI inflation*
Current account/GDP
Government balances (% of GDP)
2011
2012
2013F
2014F
16.9
6.6
5.0
5.0
2.4
1.5
2.9
2.5
32.0
30.0
27.0
25.0
FX res./imports**
6.5
7.5
7.0
7.5
Fiscal balance/GDP
7.7
6.8
7.5
7.0
Primary balance/GDP
NA
NA
NA
NA
Gen. govt. debt/GDP
28.2
28.0
28.0
35.0
External debt/GDP
69.4
71.5
72.5
71.0
4.5
4.5
4.5
–
AA
AA
Aa2
Not
Rated
Aa2
Not
Rated
Policy rate***
S&P
Country
rating
Moody’s
Fitch
*Yearly average; **months of imports; ***year-end;
Source: IMF, IIF, Standard Chartered Research
40
30
35
25
20
General govt.
debt (RHS)
Fiscal balance
30
25
20
15
15
10
10
5
5
0
0
2004 2005 2006 2007 2008 2009 2010 2011 2012F 2013F 2014F
Source: IMF, Standard Chartered Research
148
Local Markets Compendium 2014
Qatar
FX
Exchange rate products
Spot
Availability
Daily trading volume
(USD mn)
Average trade size
(USD mn)
Outright forwards
Yes
NDFs
Options
FX swaps
Yes
750
1,500
20
25
Bid/ask spread in QAR
onshore*
25
1M 0.0003
3M 0.0005
6M 0.0008
1Y 0.0015
NA
0.0003
Bid/ask spread in QAR
offshore*
Reuters ticker
1Y 0.0018
0.3 vol
1Y: 0.0015
SCFW=
OTC
SCFW=
*Versus USD; for FX swaps, bid/ask spread refers to swap points; Source: Standard Chartered Research
Exchange rate regulation
No restrictions on residents or non-residents
Source: Standard Chartered Research
MENA
Market participants
Corporates
Real-money
funds
Hedge funds
Interbank
60% x Corporates are able to trade both sides on QAR, with no restrictions.
5% x Minimal to non-existent at present.
5% x Minimal to non-existent at present.
30% x Very active interbank market, with prices dealing out to 3Y and longer tenors available on request.
Market can digest USD 500mn.
Source: Standard Chartered Research
QAR NEER – Falling
Solid C/A surplus (USD bn)
110
C/A
60
FDI
Portfolio
Other
50
105
40
100
30
BoP
20
95
10
90
0
85
80
2005
Source: IIF
-10
-20
2006
2007
2008
2009
2010
2011
2003
2012
2004
2005
Source: IMF/Article IV Reports
149
2006
2007
2008
2009
2010
2011
2012
Local Markets Compendium 2014
Qatar
Rates
MENA
Bonds
Central bank bills
Treasury bonds
Central Bank of Qatar on behalf of the Ministry of Finance
To control liquidity
Fiscal financing
1Y
3Y-7Y
3M, 6M, 9M
3Y, 5Y
Zero
6M
NA
Semi-annual
Act/Act
Issuer
Use of proceeds
Curve span
Common tenors
Coupon
Coupon frequency
Day count
Primary market
Auction day
Auction cut-off
Auction results
Auction style
Average issue size
Secondary market
Average trade size
Daily trading volume
Quotation convention
Settlement period
Bid/offer spread
Regulations
Custodian
2nd Tuesday of the month
12:00
Quarterly
NA
By end of day
Multiple-price
QAR 2bn
QAR 3-4bn
NA
Local custodian
Qatar Central Exchange
Source: Standard Chartered Research
Size of government debt market
100
30
QAR bn (LHS)
25
80
USD bn (RHS)
60
20
15
40
10
20
0
Dec-09
5
Jun-10
Dec-10
0
Jun-11
Source: Bloomberg
Swaps
Main product
Average daily market volume
Average ticket size
Average bid/offer spread
Term
Liquid up to
Settlement
Coupon frequency
Convention
Floating-rate reference
Floating-rate ticker
Ticker (2Y)
Floating-rate reference calculation
Cross-currency swaps
QAR 200mn
QAR 100mn
10bps
5Y
3Y
T+2
Annual fixed vs. 3M LIBOR
Act/360
USD LIBOR
US0003M Index
QRUSSW2 Index
Source: Reuters, Bloomberg, Standard Chartered Research
For cross-currency swaps, the floating-rate index is USD 3M
LIBOR.
Source: Standard Chartered Research
150
Local Markets Compendium 2014
Qatar
Rates
Account opening
Cash account
Local bank
Special requirements
Depository account
Local custodian
Trading account
Yes
Process duration
Approximately 1 week
Foreign investors must obtain a market identification number (MIN) from the Central Registration department of the Qatar
Exchange and open a depository custody account (which cannot be accessed by brokers), a sub-custodian agent trading
account (can be accessed by brokers), a broker trading account and a cash account.
Documentation required to open an account at the Qatar Exchange:
x Power of attorney
x Memorandum or articles of association, certificate of incorporation, prospectus
x Authorised signatory list along with passport/identification copies
Trade and settlement flowchart
Local custodian
4. Settlement Instruction
5. Money Wire and FX & Transfer Instruction
7. Send trade contract
Omnibus/ Investor’s
sub-account
MENA
Local Bank
FX conversion
1. Transaction execution
Foreign
Investor
Counterparty
3. Confirmation
Investor
FCY A/C
Investor
OMR A/C
Settlement and clearing (RTGS)
2. Order match
Qatar depository
Bond A/C
Investor
Qatar
Exchange
6. Trading Report
Counterparty
8. DVP Settlement
(T+3)
Qatar Central Bank
Cash A/C
Investor
Counterparty
Source: BBH Worldview, Standard Chartered Research
Regulations and taxation
Tax types
Additional notes
Foreign investment regulations NA
Currently requires local custody account; moving towards an
exchange-traded system
Income tax for non-residents
None
Capital gains tax
10%
Source: Standard Chartered Research
151
Local Markets Compendium 2014
Qatar
Rates
Market participants
MENA
Banks
x The Qatar Central Bank has a reserve requirement of 4.75%, which must be entirely in cash.
x Banks cannot use bonds to meet the reserve requirement.
x Secondary-market trading is very limited.
x Banks generally buy and hold in the primary market, and the bonds are typically bought via banks’ banking books as opposed
to their trading books.
x Local banks are buyers of T-bills, largely to absorb extra liquidity in the banking system.
x T-bills – 3M, 6M and 9M every month. Total monthly volume of QAR 4bn (2bn for 3M and 1bn each for 6M and 9M). Has
become consistent from Q2-2012
x The government issued bonds in June 2010, for local banks, with a coupon rate of 5%. Tenor was 5Y and average cut-off
yield was 4.5%.
x The central bank issued more local bonds directly to Qatari banks in January 2011. Tenor: 8Y, with a coupon of 6.5%. Yield
was 6.5% as it was a direct placement.
x Banks are the largest player in the local bond markets.
x T-bills are short-dated and more tradable. Banks are holding onto government bonds given their attractive yields.
Mutual funds
x Qatar’s mutual fund industry is relatively new. There are 9 funds registered with the central bank.
x 95% of funds’ assets are local-currency-based and 5% are foreign-currency-based.
x Assets categorised as funds under management stood at USD 2.86bn as of November 2011.
Insurance companies
x Insurance companies in Qatar are growing in line with rising market demand as the economy transitions from LNG-driven
growth to non-oil investment in infrastructure, especially for the 2022 World Cup.
x The energy and marine segments are the largest components of Qatar’s insurance sector, making up about 60% of revenues,
due to the country’s significant LNG assets
x The investment portfolios of Qatari insurance companies, as in much of the GCC, are diversified across asset classes (largely
domestically and regionally), including securities, government bonds, and other assets such as bank deposits.
Source: QFC ‘GCC Mutual Fund Industry Survey 2011’, QCB, Standard Chartered Research
Qatar CDS (bps)
Debt profile – Government debt outstanding (QAR bn)
150
70
End-2012
60
125
50
100
2013
40
75
30
50
20
25
10
0
0
6M 1Y
2Y
Source: Bloomberg/Reuters
3Y
4Y
5Y
7Y
10Y
2013
2016
Source: Bloomberg
152
2019
2022
2025
2028
2031
2034
2037
2040
Local Markets Compendium 2014
Qatar
Rates
Commercial banks – Assets (QAR bn)
Commercial banks – LDR is rebounding (%)
430
130
420
120
410
110
400
390
100
380
90
370
80
360
350
Dec-10
Jun-11
70
Q4-03 Q4-04 Q4-05 Q4-06 Q4-07 Q4-08 Q4-09 Q4-10 Q4-11
Dec-11
Source: QCB, Standard Chartered Research
Source: QCB, Standard Chartered Research
Insurance sector – Insurance premium is rising (QAR mn)
Cross-sectional comparison of insurance density (2012)
10K
4,000
3,000
2,000
CH
NO SG
USHK
MT
AE
PT
1K
MO
QA
100
LB
TR LT
JO
BH
OM
SA
KW
MENA
Insurance density (USD)
5,000
TT
EG
10
UY
SV
1,000
1
0
2003
0
2004
2005
2006
2007
2008
2009
2010
2011
10
20
30
2012
40
50
60
70
80
GDP PPP/capita (USD '000)
90
100
Source: Swiss Re, Standard Chartered Research
Source: Swiss Re, IMF, Standard Chartered Research
Mutual funds – Equities dominate (Mar-11, QAR mn)
Cross-sectional comparison of mutual funds (2012)
1M
LI
IE
Mutual fund/capita (USD)
Others
Balanced/mixed
Money market
Fixed income
Equities
HK
AU
CH US
NO
100K
10K
MY
1K
EG
100
Source: Lipper
100
150
200
250
OM
DE
AE
BG LT
RU
10
QA
PA
VNJO
0
50
TR
LB
SG
KW
BHSA
MA
1
0
BW
10
20
30
40
50
60
70
80
GDP PPP/capita (USD '000)
Source: ICI, Swiss Re, IMF, Ministry of Finance, central banks
153
110
90
100
110
Local Markets Compendium 2014
Saudi Arabia
Shady Shaher
General
Monetary policy framework
Monetary policy tools
Name
Statutory reserves
Under Article 7 of the Banking Control Law issued by Royal
Decree No. M/5 (dated 11 June 1966), banks operating in the
kingdom must maintain statutory reserves (a ratio of banking
deposits) with SAMA. The ratio of statutory reserves changes
depending on economic developments.
MENA
Saudi Arabian Monetary Agency
(SAMA)
Policy target
No ‘inflation-targeting’ policy
Independence
Low
Policy rate
Reverse repo rate/repo rate
Bloomberg ticker
SRRERE/SRREPO
Deciding body
SAMA
Policy decision-making NA
Decision meeting
Previous month-end or first working
frequency
day of the current month
Announcement time
NA
Press conference
NA
Minutes published
NA
Open-market
NA
operations (OMOs)
Quarterly inflation
NA
report
Source: SAMA, Standard Chartered Research
Liquid reserves
This is the ratio of total banking deposit liabilities in the form of
short-term assets that can be converted into cash within a
month. Therefore, the cash available for banks operating in
Saudi to use in lending transactions represents the difference
between total deposits and the total reserve requirement.
Repo agreements
FX swaps in foreign exchange market
Source: SAMA, Standard Chartered Research
Exchange rate framework
Exchange rate regime
Conventional peg (IMF)
Exchange rate target
USD-SAR kept within a band of 3.7400-3.7500
Intervention instruments
Through spot and swaps
Convertible?
Yes
Deliverable?
Yes
Fixing time and place
Spot date, fixing
NA
Fixing methodology
NA
T+2
Source: SAMA, Standard Chartered Research
Economic and financial indicators
Government balances (% of GDP)
2011
2012
2013F
2014F
40
Real GDP, change
6.8
6.8
4.8
4.2
35
CPI inflation*
6.1
4.9
4.9
5.0
30
Current account/GDP
22.0
21.0
19.5
18.7
25
FX res./imports**
26.7
25.4
25.0
27.0
Fiscal balance/GDP
13.0
14.5
13.0
10.0
Primary balance/GDP
13.50
13.40
7.1
6.1
6.4
6.0
10
External debt/GDP
18.8
19.9
19.0
18.0
5
Policy rate***
0.25
0.25
0.25
0.25
0
S&P
AA-
AA-
Moody’s
Aa3
Aa3
Fitch
AA-
AA-
*Yearly average; **months of imports; ***year-end;
Source: IMF, IIF, Standard Chartered Research
50
40
Fiscal balance
15
13.77
Country
rating
60
20
12.73
Gen. govt. debt/GDP
70
General govt.
debt (RHS)
30
20
10
-5
0
-10
2004 2005 2006 2007 2008 2009 2010 2011 2012F 2013F 2014F
Source: IMF, Standard Chartered Research
154
Local Markets Compendium 2014
Saudi Arabia
FX
Exchange rate products
Spot
Outright forwards
Yes
Availability
Daily trading volume
(USD mn)
Average trade size
(USD mn)
NDFs
Options
FX swaps
Yes
3,000
5,000
50
50
50
1M 0.0001
3M 0.0002
6M 0.0003
1Y 0.0004
NA
Bid/ask spread in SAR
onshore*
0.0001
Bid/ask spread in SAR
offshore*
Reuters ticker
0.0005
0.2 vol
0.0005
SCFW=
OTC
SCFW=
*Versus USD; for FX swaps, bid/ask spread refers to swap points; Source: Standard Chartered Research
Exchange rate regulation – Residents
No restrictions on residents or non-residents
Source: Standard Chartered Research
MENA
Market participants
Corporates
Real-money
funds
Hedge funds
Interbank
50% x Corporates are able to trade both sides on SAR, with no restrictions.
5% x Minimal to non-existent at present.
5% x Minimal to non-existent at present.
40% x Saudi is the biggest market by volume in the GCC, with FX swaps going out to 10Y and longer tenors
available on request.
x Markets can easily absorb spot tickets of USD 1-2bn with minimal impact.
Source: Standard Chartered Research
SAR NEER and REER – Stabilizing
The BoP is rebounding (USD bn per year)
140
200
130
150
C/A
FDI
Portfolio
Other
BoP
120
100
110
50
NEER
100
0
90
-50
80
REER
70
1994
Source: IIF
-100
1996
1998
2000
2002
2004
2006
2008
2010
2012
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: IMF
155
Local Markets Compendium 2014
Saudi Arabia
Rates
Bonds
MENA
T-Bills
Government Development Bonds
Saudi Arabian Monetary Agency
To control liquidity
1Y
2-10Y
1W, 1M, 3M, 6M, 9M, 1Y
NA
Zero
Fixed
NA
Semi-annual
Act/360
30/360
Issuer
Use of proceeds
Curve span
Common tenors
Coupon
Coupon frequency
Day count
Primary market
Auction day
Auction cut-off
Auction results
Auction style
Average issue size
Secondary market
Average trade size
Daily trading volume
Quotation convention
Settlement period
Bid/offer spread
Regulations
Custodian
Monday
13:00
By end of day (directly to dealers)
Multiple-price
SAR 9bn
Not issued since 2007
NA
Illiquid
NA
Local custodian
Source: Bloomberg, SAMA
Growth and per-capita income – Rising
8
FX reserves vs. external debt – Low debt and strong
reserve position enable spending (USD bn)
25
Real GDP
(%, LHS)
7
5
600
20
GDP per
capita
(USD '000)
6
700
FX reserves
500
15
400
4
300
10
3
200
2
5
100
1
0
0
0
2008
2009
2010
2011
External
debt
2012
2008
2009
2010
Source: Moody’s, Standard Chartered Research
Source: Moody’s, Standard Chartered Research
Swaps
Floating-rate reference calculation
Main product
Average daily market volume
Average ticket size
Average bid/offer spread
Term
Liquid up to
Settlement
Coupon frequency
Convention
Floating-rate reference
Floating-rate ticker
Ticker (2Y)
Source: Standard Chartered Research
Interest rate swaps
SAR 1.5bn
SAR 100mn
3-5bps
10Y
7Y
T+2
Annual fixed vs. 3M floating
Act/360
3M SAIBOR
SUAA (Reuters)
SARIRS (Reuters)***
2011
2012F
SAIBOR is calculated from the contributions of 12 local banks.
The 2 highest and 2 lowest are removed, and the remaining 8
contributions are averaged. The fixing is published at 11:00,
Riyadh time.
Source: Reuters (SUAA)
156
Local Markets Compendium 2014
Saudi Arabia
Rates
Account opening
Cash account
Euroclear or Local bank
Depository account
Securities Depository Center
(SDC)
Trading account
Yes
Process duration
Approximately 3 weeks
Special requirements
Trade and settlement flowchart
Local custodian
Investor’s
sub-account
3. Settlement Instruction
4. Money Wire and FX & Transfer Instruction
5a. Order matching (if OTC)
Local Bank
FX conversion
Investor
FCY A/C
1. Transaction execution
Foreign
Investor
Settlement and clearing
Counterparty
2. Confirmation
Investor
SAR A/C
SAMA
Bond A/C
1b. Transaction execution
(if executed on the Tadawul)
Investor
6. DVP Settlement
(T+2)
Tadawul
5b. Trading report
(if executed on
the Tadawul)
SAMA: Saudi Arabia Monetary Authority
SAIRE: Saudi Arabian Riyal Interbank Express
Tadawul: The Saudi Stock Exchange Company
Regulations and taxation
Additional notes
Foreign investment regulations Local-currency bonds
Income tax for non-residents
None
Capital gains tax
20%
SAMA/SAIRE
Cash A/C
Investor
Source: BBH Worldview, Standard Chartered Research
Tax types
Counterparty
Local custody account required
Source: Standard Chartered Research
157
Counterparty
MENA
Foreign investors need to obtain regulatory approval from SAMA to establish a cash account and open a depository account at
the SDC. On approval, the investor is assigned an investor identification number. The documentation required for SAMA
application and account opening at the SDC:
x Certificate of organisation/commercial registration
x Memorandum/articles of association
x Power of attorney (notarised and consularised)
x Authorised signatory list and identification document of authorised signatories
x Names, including nationalities of Board of Directors and authorised signatories along with their identification documents (in
the case of corporate or financial institutions) or list of partners (in the case of corporate partnership)
x Full details of company ownership (shareholders over 5%) and names of all beneficial owners
x AML declaration and questionnaire
x Additional documents required for funds:
o The regulator’s licence letter for the establishment of the fund
o The mutual fund’s term sheet
o Latest audited financial statement of the fund
Local Markets Compendium 2014
Saudi Arabia
Rates
Market participants
Banks
x Banks must retain 7% of their demand deposits in cash.
x Banks are active buyers of T-bills due high liquidity in the domestic banking system.
x T-bill tenors are 1-week, 1M, 3M, 6M and 1Y. All tenors are actively bought by banks due to strong market liquidity conditions.
x There has been no new government bond issuance since 2007, as high oil prices/output and significant state reserves
(USD 560bn+) have capped the deficit.
x Existing government bonds extend to 2017, and banks are among the key holders.
x Regulated by the Saudi Arabian Monetary Agency (http://www.sama.gov.sa/)
MENA
Insurance companies
x Saudi Arabia’s insurance market is one of the more developed in the region, although the protection and savings component
is a small proportion relative to the general and health components.
x For all insurance companies, the largest share of investments is held in deposits at local financial institutions, comprising
around 40% of total investments; debt, securities and fixed income represent around 17%.
x For protection and savings insurance funds, however, over 90% of assets are in ‘other investments’, mainly investments in funds.
x Regulated by the Saudi Arabian Monetary Agency (http://www.sama.gov.sa/)
Mutual funds
x The mutual fund industry is relatively well developed, with a size in line with other countries at similar income levels.
x Fixed income funds are small, representing less than 4% of total assets; money-market funds represent the largest proportion.
x Saudi Arabia had close to 239 funds as of Q3-2011, with about 300,038 subscribers or 1.2% of the population. Fund assets
stood at USD 22.79bn.
x An estimated 83% of funds are Shariah-compliant, while 17% are conventional.
x 68.8% are growth funds, 10.8% are capital preservation, 10% are income and growth, and 10.4% are income funds.
x Official statistics indicate that about 79% of funds are domestically focused.
x Mutual funds are very active players in the Saudi market. Domestic money markets have a share of investments of close to
50.7% of assets, according to SAMA. They are followed by domestic equity markets, at 21.1%; foreign assets, at c.14.3%;
and domestic bonds, at c.3.6%.
x Regulated by the Saudi Arabian Monetary Agency (http://www.sama.gov.sa/)
Source: SAMA, QFC ‘GCC Mutual Fund Industry Survey 2011’, Standard Chartered Research
IRS curve – Rising (%)
Debt profile – Saudi Arabia’s local-currency debt (SAR bn)
5
3.0
End-2010
4
2.5
2013
2.0
3
End-2012
2
1.5
End-2011
1.0
1
0.5
0
0.0
1M 6M 1Y
2Y
3Y
4Y
Source: Standard Chartered Research
5Y
7Y
2013
10Y
2014
Source: Standard Chartered Research
158
2015
2016
2017
Local Markets Compendium 2014
Saudi Arabia
Rates
Central bank assets continue to grow (SAR bn)
Commercial banks – LDRs remain healthy (%)
88
3,000
86
2,500
84
2,000
82
1,500
80
78
1,000
76
500
2006
2007
2008
2009
2010
2011
74
Q4-06
2012
Q4-07
Q4-08
Q4-09
Q4-10
Q4-11
Q4-12
Source: SAMA, Standard Chartered Research
Source: SAMA, Standard Chartered Research
Insurance sector – Growing but still small (SAR bn)
Cross-sectional comparison of insurance density (2012)
10K
8
General
nsurance
6
4
Protection &
savings
2
CH
MT
1K
100
LB
TR
JO
LT
OM
USHK NO
SG
AE
PT
BH
SA
KW
MENA
Insurance density (USD)
Health
insurance
10
TT
UY
EG
10
SV
1
0
2006
0
2007
2008
2009
5
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
2010
50
55
60
Source: Swiss Re, Standard Chartered Research
Source: Swiss Re, IMF, Standard Chartered Research
Breakdown by fund assets (SAR bn)
Cross-sectional comparison of mutual funds (2012)
100
Equities
Fixed income
Money market
Balanced/mixed
Others
1M
Mutual fund/capita (USD)
IE
80
60
40
20
0
Mar-11
100K
AU
MY
1K
Source: Lipper, Saudi Arabian Monetary Agency
Sep-12
Mar-13
DE
RU
10
PA
VN JO
5
BW
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
Source: ICI, Swiss Re, IMF, Ministry of Finance, central banks
159
AE
LT
BG
0
Mar-12
TR
LB
EG
NO
KW
SA
BH
OM
MA
100
SG
HK
CH US
10K
1
Sep-11
65
50
55
60
65
Local Markets Compendium 2014
Turkey
Philippe Dauba-Pantanacce
MENA
General
Monetary policy framework
Monetary policy tools
Name
Open-market operations
x Daily 1-week repurchase operations (via ‘quantity’ auction
method, at fixed interest rate) to manage banking liquidity
x Auction amount announced at 10:00; auction held at 11:00
x Weekly repo bids limited to 20% of total auction amount
x Every 4 weeks, Friday repo auction
x Locals can conduct repos with the CBRT from the upper
band of the corridor in case of shortage
x Excess liquidity withdrawn through overnight transactions
conducted between 10:00-12:00 and 13:00-16:00; late
liquidity window between 16:00-17:00
x Spread between overnight borrowing and lending interest rates
Central Bank of the Republic of
Turkey (CBRT)
Policy target
CPI inflation at 5% y/y in the medium
term
Independence
Theoretically high, under the Law on
the Central Bank of the Republic of
Turkey
Policy rate
1-week repo rate
Bloomberg ticker
TUBR1WRA
Deciding body
Monetary policy committee:
6 members (1 external member)
Policy decision-making One man, one vote
Decision meeting
Monthly, around 20th of the month
frequency
Announcement time
14:00 Istanbul time
Press conference
For the quarterly inflation report
Minutes published
Within 5 working days
Open-market
To ensure policy rate transmission,
operations (OMOs)
manage liquidity
Quarterly inflation
Jan, Apr, Jul, Oct (usually last week of
report
the month)
Source: CBRT
Reserve requirement ratios (RRR)
x Supplementary to monetary policy
x Declining for longer-dated maturities, variable by currency
x TRY RRR not remunerated
Liquidity (TRY and FX) management
x Transparent daily foreign exchange auctions
x FX buying or selling
x Can issue 3M CBRT liquidity bills; also outright sales of
government securities and TRY deposit-buying auctions
with 1-, 2- or 4-week maturities
Source: CBRT & Altan
Exchange rate framework
Exchange rate regime
Floating (IMF)
Exchange rate target
NA
Intervention instruments
Spot auctions/spot (rare)
Convertible?
Yes
Deliverable?
Yes
Fixing time and place
Spot date, fixing
10:30-15:30, Istanbul
Fixing methodology
Average of 6 fixings (10:30 -11:30 - 12:30 - 13:30 - 14:30 - 15:30), Istanbul time
T+1
Source: Standard Chartered Research
Economic and financial indicators
Real GDP, change
CPI inflation*
Current account/GDP
FX res./imports**
Fiscal balance/GDP
Primary balance/GDP
Gen. govt. debt/GDP
External debt/GDP
Policy rate***
S&P
Country
Moody’s
rating
Fitch
2011
8.5
6.5
-9.8
4.1
-1.5
1.9
39.1
43.4
5.75
BB
Ba2
BB
*Yearly average; **months of imports, ***year-end;
Source: GSP, Standard Chartered Research
Government balances (% of GDP)
2012
2.2
8.9
-6.1
5.5
-2.0
1.4
37.6
42.7
5.50
BB
Ba1
BBB
2013F
3.5
7.6
-8.0
5.0
-2.6
0.8
37.2
44.5
5.50
2
2014F
4.5
6.8
-7.5
5.5
-2.8
0.3
36.9
46.0
5.50
70
1
60
0
50
-1
-2
-3
40
General govt.
debt (RHS)
30
-4
-5
20
-6
-7
Fiscal balance
-8
0
2004 2005 2006 2007 2008 2009 2010 2011 2012F 2013F 2014F
Source: IMF, Eurostat, Treasury
160
10
Local Markets Compendium 2014
Turkey
FX
Exchange rate products
Spot
Availability
Daily trading volume
(USD mn)
Average trade size
(USD mn)
Outright forwards
Yes
7,955
NDFs
Options
Yes
3,032
10
Bid/ask spread in TRY
onshore*
1M 0.0007
3M 0.0009
6M 0.0014
12M 0.0019
0.0004
Bid/ask spread in TRY
offshore*
Reuters ticker
FX swaps
3,757
12,634
25
50
0.5 vol
1M 0.0003
3M 0.0005
6M 0.0010
12M 0.0015
NA
NA
NA
OTC
NA
*Versus USD; for FX swaps, bid/ask spread refers to swap points; Source: Sources: BIS, Triennial Central Bank Survey, December 2010, Standard Chartered Research
Exchange rate regulation – Residents
Source: See also: Decree no. 32 ‘on the Protection of the Value of the Turkish Lira’
http://www.treasury.gov.tr/default.aspx?nsw=TrR3vg8KCNGoDQ4jjQvkpw==-SgKWD+pQItw=&mid=749&cid=34&nm=680
If link does not work, simply go to www.treasury.gov.tr; then "Legislation"; then "Exchange Legislation"
Market participants
Corporates
Real-money
funds
Hedge funds
Interbank
25% x
x
20% x
x
25% x
x
30% x
x
Corporate clients are active in the TRY FX market due to Turkey’s large trade deficit and TRY volatility.
Growing foreign trade volume is increasing the importance of local corporate flows.
Significant in the FX market given Turkey’s open capital account.
FX flows are driven by equity or bond interest. Real-money funds have recently increased their hedges
given the performance of Turkish government bonds.
Significant in the TRY FX market given limited FX restrictions and relatively high liquidity.
Speculative and active in both forwards and options.
Interbank trading is mainly flow-driven and short-term in nature.
Interbank participants are active in both the spot and forward markets.
Source: Standard Chartered Research
TRY NEER and REER – Trend NEER depreciation
120
110
100
90
80
70
60
50
40
30
20
2001
Source: BIS
Turkey is dependent on foreign capital (USD mn)
C/A
80
REER
FDI
Ext. borrowing of Non-bank private sector
Other
60
40
BoP
20
0
-20
-40
NEER
-60
-80
2003
2005
2007
2009
2011
2013
2002
Source: CBRT
161
2004
2006
2008
2010
2011
2012
MENA
x Unrestricted importation and exportation (via banks) of TRY for residents and non-residents (Art. 3 of Decree no. 32 ‘on the
protection of the value of the Turkish lira’)
x Banks must inform the Treasury of TRY transfers abroad (excluding payments for exports and imports) of more than
USD 50,000 within 30 days of the transfer date.
x Non-residents may freely make payments, collect money and make deposits in TRY in Turkey.
Local Markets Compendium 2014
Turkey
Rates
Bonds
MENA
Discount
Issuer
Use of proceeds
Curve span
Common tenors
Coupon
Coupon frequency
Day count
Primary market
Auction day
Auction cut-off
Auction results
Auction style
Average issue size
Secondary market
Average trade size
Daily trading volume
Quotation convention
Settlement period
Bid/offer spread
Regulations
Custodian
Coupon
Government of Turkey
Fiscal financing
1.5Y
3M, 6M, 1Y, 1.5Y
Zero
NA
3Y-10Y
2Y, 3Y, 5Y, 7Y, 10Y
Fixed, FRN & CPI-linked
Quarterly/semi-annually
Act/365
Monday/Tuesday
12:00
13:15-14:00 (Istanbul)
13:30-14:00 (Istanbul)
Multiple-price, non-competitive greenshoe for PDs
TRY 1-3bn
TRY 20mn
TRY 1bn
Simple yield
Clean price
T until 14:00, T+1 after 14:00 local time
3bps
0.50/100 notional
Local
Source: Standard Chartered Research
Local-currency government debt – Rising
FX component of government debt is trending lower
450
TRY bn (LHS)
400
350
300
USD bn (RHS)
250
200
2005
2006
2007
2008
2009
2010
2011
220
80
200
70
180
60
160
50
140
40
120
30
100
20
2003
2012
% of central
govt. gross
debt in TRY
% of central
govt. gross
debt in FX
2004
2005
2006
2007
2008
2009
Source: Treasury
Source: Treasury
Swaps
Floating-rate reference calculation
Main product
Average daily market volume
Average ticket size
Average bid/offer spread
Term
Liquid up to
Settlement
Coupon frequency
Convention
Floating-rate reference
Floating-rate ticker
Ticker (2Y)
Cross-currency swaps
TRY 1.2bn
TRY 20mn
5bps
10Y
5Y
T+2
Annual fixed vs. 3M floating
Act/360
3M USD LIBOR
US0003M
TYUSSW2 Crncy (Bloomberg)
Source: Reuters, Bloomberg, Standard Chartered Research
2010
2011
2012
For cross-currency swaps, the floating-rate reference is 3M
US LIBOR.
Source: Standard Chartered Research
162
Local Markets Compendium 2014
Turkey
Rates
Account opening
Cash account
Euroclear or local bank
Special requirements
Depository account
Local custodian
Trading account
Yes
Process duration
Approximately 3-5 days
All financial institutions (including foreign ones) must have a tax identification number. This is a prerequisite for opening
accounts at MKK (Merkezi Kayit Kurulusu, the Central Securities Depository). As Turkey is a beneficial owner market, the
securities of clients must be safe-kept at the MKK, segregated at the beneficial owner level. The following documents need to
be completed for a tax ID application with the MKK:
x Commercial register from the country of residence with an apostille
x Certificate of authorisation related to the business, from the country of residence with an apostille
x Certificate of residence with an apostille
Depending on security type and beneficial owner, settlement happens through CBRT or Takasbank.
Trade and settlement flowchart
MKK
7. Confirmation of trade
Omnibus/ Investor’s
sub-account
Local Bank
FX conversion
1. Transaction execution
Foreign
Investor
Counterparty
3. Confirmation
Investor
FCY A/C
Investor
TRY A/C
Settlement and clearing
2. Execution
CBRT/MKK/Takasbank
BIST
or OTC trading
system
Bond A/C
Investor
Counterparty
7. DVP Settlement
(TD or T+1)
BIST: Borsa Istanbul
CBRT: Central Bank of the Republic of Turkey
MKK: Central Securities Depository
TAKASBANK: Central Clearing Institution for BIST
Cash A/C
Investor
Counterparty
Source: BBH Worldview, Standard Chartered Research
Regulations and taxation
Tax types
Additional notes
Foreign investment regulations Not restricted
According to the ‘Decree for the protection of the value of the
Turkish Lira’, there are no restrictions on capital inflows to Turkey.
Capital outflows up to USD 5mn need approval from the Treasury.
Income tax for non-residents
Exempt
Turkish bonds are tax-free for offshore investors. There is no
taxation of capital gains or coupons.
Capital gains tax
Exempt
0% WHT on capital gains and interest income derived by eligible
entities from Turkish government bonds issued and sold in Turkey
after 01-Jan-2006, and 10% WHT otherwise.
Source: Standard Chartered Research
163
MENA
4. Settlement Instruction
5. Money Wire and FX & Transfer Instruction
Local Markets Compendium 2014
Turkey
Rates
Market participants
Banks
x Domestic reserve requirements are a maximum of 11% (for demand and 1M time deposits) and decline in steps to a minimum
of 5% (for liabilities longer than 1Y); 10% may be held in USD or EUR.
x Foreign-currency reserve requirements are 11% for demand and time deposits up to 1Y, and 9% for deposits of 1Y+.
x Regulator: Central Bank of the Republic of Turkey (CBRT) (www.tcmb.gov.tr/)
Foreign investors
x There are no restrictions on foreign portfolio investments following Decree No. 32 of August 1989, removing restrictions on
foreign participation, although a Turkish intermediary institution must be used for securities activities.
x Foreign participation tends to be in the most liquid, on-the-run benchmark T-bills (the longest-dated zero-coupon bond), in
addition to coupon and inflation-linked bonds.
MENA
Individuals/mutual funds
x Money-market funds still dominate the domestic mutual fund industry, representing over 75% of all mutual fund assets. Bond
funds represent a further 10%.
x Mutual funds are regulated by the Capital Markets Board (www.cmb.gov.tr/)
Insurance companies
x The insurance sector remains a small participant in the domestic bond market because of its small size relative to the
economy.
x Assets are heavily biased towards government bonds, at around 80%.
x Regulator: Undersecretariat of Treasury (www.treasury.gov.tr/), under the General Directorate of Insurance
Pension funds
x Public pensions are provided by the Social Security Institution and are financed by the Treasury through a pay-as-you-go
system.
x Private-sector investments are made through pension mutual funds, with a bias towards government bonds (around 60%).
x Regulators: Undersecretariat of Treasury (www.treasury.gov.tr/) and Capital Markets Board (www.cmb.gov.tr/)
Source: Standard Chartered Research
Ownership by participant (TRY bn)
Ownership by participant (%)
300
80
70
250
Banks
60
200
Banks
50
150
40
Foreigners
100
Central bank
Insurance
50
Individual
0
2003
2005
2007
2009
2011
Central banks
30
Others
20
Mutual fund
10
Individual
0
Jan-03
2013
Foreigners
Insurance
Others
Mutual fund
Jan-05
Jan-07
Jan-09
Jan-11
Source: Banking Regulation and Supervision Agency (BDDK)
Source: Banking Regulation and Supervision Agency (BDDK)
Yield curve (%)
Debt profile (TRY bn)
Jan-13
160
13
140
11
End-2011
120
End-2010
100
2013
9
80
End-2012
7
60
40
5
20
0
3
3M
1Y
Source: Bloomberg
2Y
3Y
4Y
5Y
7Y
10Y
2013
Source: Bloomberg
164
2015
2017
2019
2021
2023
2025
Local Markets Compendium 2014
Turkey
Rates
Commercial banks – Asset growth is falling
Commercial banks – Steep increase in LDR
1.8
120
35
1.6
30
y/y growth
(%, RHS)
1.4
100
25
1.2
1.0
10
5
0.2
2005
2006
2007
2008
2009
2010
2011
22
20
2012
18
LDR (%, LHS)
70
0.6
Assets
(TRY tn)
24
80
15
0.4
26
90
20
0.8
28
Government
bonds % of
assets
110
16
60
14
50
12
40
Q4-04 Q4-05 Q4-06 Q4-07 Q4-08 Q4-09 Q4-10 Q4-11 Q4-12
10
Source: BRSA Turkey http://ebulten.bddk.org.tr/AylikBulten/Basit.aspx
Source: BRSA Turkey
Insurance assets are small, biased towards government
bonds
Cross-sectional comparison of insurance density (2012)
10K
Bond % of
assets (RHS)
12
80
10
8
60
6
40
Asset
(TRY bn)
4
CH
MT
1K
100
LB
TR
JO
BH
OM
SA
LT
USHK NO
SG
AE
PT
KW
MENA
Insurance density (USD)
100
14
TT
UY
EG
10
SV
20
2
1
0
1997
1999
2001
2003
2005
2007
2009
0
2011
0
5
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
50
55
60
Source: Turkey Undersecretariat of Treasury
Source: Swiss Re, IMF, Standard Chartered Research
Mutual funds – Money-market funds dominate (TRY bn)
Cross-sectional comparison of mutual funds (2012)
35
Equities
Foreign securities
Govt. bonds
Money market
Others
1M
IE
Mutual fund/capita (USD)
30
25
20
15
10
100K
AU
MY
1K
2006
2008
2010
NO
DE
AE
OM
BG LB LT
RU
10
PA
VN JO
0
2004
TR
EG
1
2002
CH US
KW
BH SA
MA
100
SG
HK
10K
5
0
2000
5
BW
10
15
2012
20 25 30 35 40 45
GDP PPP/capita (USD '000)
50
55
60
Source: CMB
Source: ICI, Swiss Re, IMF, Ministry of Finance, central banks
Private pension funds remain small, but are growing fast
Cross-sectional comparison of pension funds (2012)
25
100K
90
Govt bonds %
assets (RHS)
80
Pension fund/capita (USD)
20
70
60
15
50
Assets
(TRY bn)
10
40
30
20
5
10
0
2003
2004
Source: EGM
2005
2006
2007
2008
2009
2010
2011
65
CH
IL
10K
NA
1K
LK
TH
BG
HK
JP
FR
SG
NO
AT
HU
DE
TR
100
US
65
MT
EG
CS
10
GR
UA
1
0
2012
0
5
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
Source: OECD, FIAP, Swiss Re, IMF, local sources including
pension fund associations, Ministry of Finance, central banks
165
50
55
60
65
Local Markets Compendium 2014
United Arab Emirates
Shady Shaher
General
Monetary policy framework
Monetary policy tools
Name
Policy target
Independence
Policy rate
Bloomberg ticker
Deciding body
Policy decision-making
Decision meeting
frequency
Announcement time
Press conference
Minutes published
Open-market
operations (OMOs)
Quarterly inflation
report
Minimum reserve requirement
x The required reserve ratio is 14% on current, savings and
call accounts, and 1% on time deposits. In addition, banks
are required to keep at the central bank 30% of their AED
deposits abroad with non-resident banks (in the case of
foreign banks, including their head offices and branches).
Ratios on local customer deposits apply uniformly to the
AED and foreign currencies.
x The Central Bank of the UAE uses the following tools for
liquidity management:
- Reserve requirements
- USD-AED swaps for AED liquidity
- Advances and overdraft facilities
- CBUAE issuance of CDs and repo facilities on CDs held
- Liquidity support facility
Central Bank of the UAE (CBUAE)
No ‘inflation targeting’ policy
Low
Repo rate
CUAE1-7
CBUAE
NA
NA
NA
NA
NA
NA
NA
MENA
Source: CBUAE, Standard Chartered Research
Source: CBUAE
Exchange rate framework
Exchange rate regime
Conventional peg (IMF)
Exchange rate target
USD-AED kept within a band of 3.6720-3.6730
Intervention instruments
FX swaps
Convertible?
Yes
Deliverable?
Yes
Fixing time and place
Spot date, fixing
NA
Fixing methodology
NA
T+2
Source: CBUAE, Standard Chartered Research
Economic and financial indicators
Government balances (% of GDP)
2011
2012
2013F
2014F
Real GDP, change
4.2
4.3
3.5
3.6
CPI inflation*
0.9
1.5
2.9
2.5
11.2
16.8
14.0
12.0
FX res./imports**
2.8
3.2
3.0
3.2
Fiscal balance/GDP
6.5
5.1
5.0
5.2
Primary balance/GDP
9.9
10.4
10.2
10.5
Gen. govt. debt/GDP
18.5
18.1
17.5
18.0
External debt/GDP
40.7
40.2
40.1
40.0
1.0
1.0
1.0
1.0
NA
NA
Aa2
Aa2
NA
NA
Current account/GDP
Policy rate***
S&P
Country
rating
Moody’s
Fitch
*Yearly average; **months of imports; ***year-end;
Source: IMF, IIF, Standard Chartered Research
20
25
Fiscal balance
15
General govt.
debt (RHS)
10
20
15
5
0
10
-5
5
-10
-15
0
2004 2005 2006 2007 2008 2009 2010 2011 2011 2013F 2014F
Source: IMF, Standard Chartered Research
166
Local Markets Compendium 2014
United Arab Emirates
FX
Exchange rate products
Spot
Outright forwards
Yes
Availability
Daily trading volume
(USD mn)
Average trade size
(USD mn)
Bid/ask spread in AED
onshore*
NDFs
Options
FX swaps
Yes
2,500
4,000
40
50
50
1M 0.0001
3M 0.0002
6M 0.0003
1Y 0.0004
NA
0.0001
1Y 0.0005
Bid/ask spread in AED
offshore*
Reuters ticker
0.2 vol
0
0.0005
SCFW=
OTC
SCFW=
*Versus USD; for FX swaps, bid/ask spread refers to swap points; Source: Standard Chartered Research
Exchange rate regulation – Residents
No restrictions on residents or non-residents
MENA
Market participants
Corporates
Real-money
funds
Hedge funds
Interbank
50% x Corporates are able to trade both sides on AED, with no restrictions.
5% x Minimal to non-existent at present.
5% x Minimal to non-existent at present.
40% x Interbank market is vibrant, with prices out to 5Y on FX and longer tenors available on request.
x In spot, the market can digest tickets of up to USD 1bn with minimal slippage.
Source: Standard Chartered Research
AED NEER – Falling
BoP is volatile (USD mn)
150
60
140
50
130
40
120
30
110
20
100
10
90
0
80
1994
Source: IIF
C/A
FDI
Portfolio
Other
BoP
-10
1997
2000
2003
2006
2009
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
2012
Source: IMF/Article IV Reports
167
Local Markets Compendium 2014
United Arab Emirates
Rates
MENA
Bonds
CD
Central Bank of the UAE
To control liquidity
1W-1Y
NA
Zero
NA
Act/360 (<1Y), 30/360 (>1Y)
Issuer
Use of proceeds
Curve span
Common tenors
Coupon
Coupon frequency
Day count
Primary market
Auction day
Auction cut-off
Auction results
Auction style
Average issue size
Secondary market
Average trade size
Daily trading volume
Quotation convention
Settlement period
Bid/offer spread
Regulations
Custodian
Dubai Government Bonds
Government of Dubai
Bank capitalisation and fiscal purposes
5Y
Fixed, FRN
Semi-Annual
30/360
Daily (Sunday-Thursday)
11:30
Daily: 12:30 (to banks), Monthly: 13:30
NA
NA
NA
Central Bank of the UAE
NA
Source: Source: Bloomberg, CBUAE
Swaps
Main product
Average daily market volume
Average ticket size
Average bid/offer spread
Term
Liquid up to
Settlement
Coupon frequency
Convention
Floating-rate reference
Floating-rate ticker
Ticker (2Y)
Floating-rate reference calculation
Interest rate swaps
AED 2bn
AED 100mn
5-7bps
10Y
7Y
T+2
Annual fixed vs. 3M floating
Act/360
3M EIBOR
EBOR (Reuters)
AEDIRS (Reuters)
Source: Reuters, Standard Chartered Research
EIBOR is calculated as the average rate provided by 11 local
banks, removing the 2 highest and lowest rates from the
calculation. Since 1 October 2009, the calculation has been
conducted by the central bank.
Source: Reuters
168
Local Markets Compendium 2014
United Arab Emirates
Rates
Account opening
Cash account
Local bank
Depository account
Local custodian
Trading account
Yes
Process duration
Approximately 3-5 days (DFM)
Approximately 2-3 weeks
(ADX)
Special requirements
To trade in the Dubai Financial Market (DFM) or Abu Dhabi Exchange (ADX), investors need to obtain a unique identification
number (NIN) by opening a depository custody account with the respective central depository centre
Documentation required opening an account at the UAE exchange:
x Power of attorney (notarised and consularised)
x Memorandum or articles of association, prospectus
x Certificate of incorporation (notarised)
x Authorised signatory list along with passport/identification copies
Trade and settlement flowchart
Local custodian
Local Bank
FX conversion
1. Transaction execution
Foreign
Investor
Counterparty
3. Confirmation
Investor
FCY A/C
Investor
AED A/C
Settlement and clearing
2. Order match
ADX or CFM CDS
Bond A/C
ADX or DFM
Investor
6. Trading Report
7. DVP Settlement
(T+2)
NBAD or NBD
DFM: Dubai Financial Market
ADX: Abu Dhabi Exchange
ADX CDS: Abu Dhabi Exchange Clearing, Depository and Settlement
DFM CDS: Dubai Financial Market Clearing, Depository and Settlement
NBAD: National Bank of Abu Dubai
NBD: Emirates National Bank of Dubai
Cash A/C
Investor
Source: BBH Worldview, Standard Chartered Research
Regulations and taxation
Tax types
Additional notes
Foreign investment regulations Local-currency bonds
Local custody account required
Income tax for non-residents
None
Capital gains tax
None
Counterparty
Source: Source: Standard Chartered Research
169
Counterparty
MENA
Investor’s
sub-account
4. Settlement Instruction
5. Money Wire and FX & Transfer Instruction
Local Markets Compendium 2014
United Arab Emirates
Rates
Market participants
Banks
x Banks must retain as reserves 14% of their total current, savings and call accounts, and 1% of their time deposits.
x Banks must hold 30% of their AED deposits abroad at the central bank.
x Only banks in the UAE are allowed to buy CDs. This product is exclusive to the banking sector.
x For CDs, the 1Y tenor is one of the most actively traded.
MENA
Insurance companies
x Insurance companies listed at the DIFC are regulated by the DIFC and are offshore. All other insurance entities are regulated
by the Federal Insurance Authority (FIA).
x Revenue models are diverse; marine and aviation account for the largest share (40%) given the large ports and airline
sectors; property insurance is at 20%, energy at 12%, and motor and health at an estimated 10% and 8%, respectively.
Mutual funds
x The UAE mutual fund industry is largely based in and regulated by DIFC, an offshore banking centre not regulated by the
central bank (http://www.difc.ae/).
x Mutual funds are growing, and their investment portfolios are diverse. Equities are the largest component (estimated at
60%+), followed by fixed income at around 8%, money markets at 4.8%, and other investments at 30%+.
x There are an estimated 89 funds in the UAE; 24 of them are Shariah-compliant. 35 of these funds are locally domiciled, of
which 9 are Shariah-compliant (data as of June 2011).
x 64% of fund assets are estimated to be conventional, with the remainder Shariah-compliant. 71.4% of fund assets are in USD,
and 24.2% are in AED.
x 61.2% of funds are equity funds, 7.7% in fixed income, 4.8% in money markets, and 26.3% in others.
x In January 2011, the onshore securities regulator, Emirates Securities and Commodities Authority (ESCA,
http://www.sca.gov.ae), proposed two draft regulations. Together, these would require the following:
Source: Ernst & Young, DIFC, CBUAE, QFC ‘GCC Mutual Fund Industry Survey 2011’, Standard Chartered Research
IRS curve (%)
6
End-2010
5
4
2013
End-2011
3
End-2012
2
1
0
1M 6M 1Y
2Y
3Y
4Y
5Y
7Y
10Y
Source: Bloomberg
170
Local Markets Compendium 2014
United Arab Emirates
Rates
Central bank’s assets have declined (AED bn)
A/D ratios continue to improve
300
108
106
104
250
102
100
200
98
96
150
94
92
100
2006
2007
2008
2009
2010
2011
90
Q1-09 Q3-09 Q1-10 Q3-10 Q1-11 Q3-11 Q1-12 Q3-12 Q1-13
2012
Source: CBUAE, Standard Chartered Research
Source: CBUAE, Standard Chartered Research
Insurance sector – Premium growth (AED bn)
Cross-sectional comparison of insurance density (2012)
10K
25
20
15
10
CH
MT
100
LB
TR
JO
LT
SG
AE
PT
1K
USHK NO
BH
OM
SA
KW
MENA
Insurance density (USD)
30
TT
UY
EG
10
SV
5
1
0
2003
0
2004
2005
2006
2007
2008
2009
2010
2011
5
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
2012
50
55
60
Source: Swiss Re, Standard Chartered Research
Source: Swiss Re, IMF, Standard Chartered Research
Mutual funds – Breakdown of AUM (AED bn)
Cross-sectional comparison of mutual funds (2012)
3.0
Equities
Fixed income
Money market
Balanced/mixed
Others
1M
Mutual fund/capita (USD)
IE
2.5
2.0
1.5
1.0
0.5
100K
AU
MY
1K
Source: Lipper survey
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
DE
OM
RU
10
PA
VN JO
5
BW
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
Source: ICI, Swiss Re, IMF, Ministry of Finance, central banks
171
AE
LT
BG
0
Dec-11
TR
LB
EG
NO
KW
BH SA
MA
100
SG
HK
CH US
10K
1
0.0
Mar-11
65
50
55
60
65
Local Markets Compendium 2014
MENA
This page is intentionally blank.
172
Sub-Saharan Africa
Local Markets Compendium 2014
Angola
Victor Lopes
General
Monetary policy framework
Monetary policy tools
Name
Policy target
Independence
Policy rate
Bloomberg ticker
Deciding body
Policy decision-making
Decision meeting
frequency
Announcement time
Press conference
Minutes published
Open-market
operations (OMOs)
Quarterly inflation
report
Reserve requirements
Used to help control liquidity in the economy; currently at 20%
Banco Nacional de Angola (BNA)
Single-digit inflation
Low
BNA rate
Monetary Policy Committee
Monetary Policy Committee
Monthly
FX interventions
The BNA intervenes in the FX market to preserve exchange
rate stability.
Permanent facilities
The BNA uses permanent liquidity facilities (overnight and
intraday) to manage liquidity. The BNA rate on these facilities
signals the monetary policy orientation.
NA
NA
NA
Yes
OMOs
x The BNA can supply liquidity via short-term (7-day) and
long-term (28-day) refinancing operations and occasionally
via FX swaps.
x The BNA mops up liquidity via reverse repos, fixed-term
deposits and issuance of TBCs (central bank bills with 14-,
28- and 63- day maturities).
Yes
Source: BNA, Standard Chartered Research
Source: BNA, Standard Chartered Research
Sub-Saharan Africa
Exchange rate framework
Exchange rate regime
Stabilised arrangement (IMF)
Exchange rate target
Intervention instruments
Convertible?
No official target, but the BNA intervenes to maintain AOA stability
Deliverable?
No
Fixing time and place
Spot date, fixing
NA
Fixing methodology
NA
No
T+2
Source: IMF, BNA, Standard Chartered Research
Economic and financial indicators
Real GDP, change
CPI inflation*
Current account/GDP
FX res./imports**
Fiscal balance/GDP
Primary balance/GDP
Gen. govt. debt/GDP
External debt/GDP
Policy Rate*
S&P
Country
Moody’s
rating
Fitch
2011
3.9
15.0
9.6
6.3
12.6
11.9
30.9
19.7
10.50
BBBa3
BB-
Government balances (% of GDP)
2012
8.4
10.3
9.2
6.9
8.9
9.5
28.5
19.5
10.25
BBBa3
BB-
*Yearly average; **months of imports; ***year-end;
Source: IMF, Bloomberg, Standard Chartered Research
2013F
7.0
9.4
6.0
7.1
1.5
2.5
30.6
20.4
10.00
14
2014F
7.0
8.5
5.0
7.1
1.2
2.2
34.0
21.0
9.50
60
Fiscal balance
12
50
10
8
General govt.
debt (RHS)
6
4
40
30
2
20
0
-2
10
-4
-6
0
2004 2005 2006 2007 2008 2009 2010 2011 2012F 2013F 2014F
Source: IMF
174
Local Markets Compendium 2014
Angola
FX
Exchange rate products
Availability
Daily trading volume
(USD mn)
Average trade size
(USD mn)
Bid/ask spread in AOA
onshore*
Bid/ask spread in AOA
offshore*
Reuters ticker
Spot
Yes (LHS only)
Outright forwards
NDFs
Options
FX swaps
NA
NA
*Versus USD; for FX swaps, bid/ask spread refers to swap points vs. USD; Source: Standard Chartered Research
Exchange rate regulation – Non-residents
Spot
Underlying asset – Trade and FDI
Underlying asset – Financial asset
No underlying asset
Forwards
NDFs
Options
FX swaps
Non-residents can have foreign- and domestic-currency accounts if authorised by the
BNA.
Exchange controls are in place. Most transactions need BNA approval.
Exchange rate regulation – Residents
Residents can hold foreign-currency accounts.
Source: BNA, Standard Chartered Research
AOA REER and NEER: Sharp REER appreciation
Source: Bruguel
350
REER (RHS)
C/A
15
400
FDI & Portfolio
10
Other
BoP
300
250
Other Investment
5
200
0
150
100
NEER (LHS)
-5
50
-10
0
2005
2007
2009
2011
2008
2013
Source: IMF
175
2009
2010
2011
2012
Sub-Saharan Africa
20
18
16
14
12
10
8
6
4
2
0
2003
Healthy BoP surplus is back (USD bn per year)
Local Markets Compendium 2014
Angola
Rates
Bonds
Bonds
T-bills
TBC (BNA bills)
Government of Angola
Central bank
Fiscal financing and monetary
Fiscal financing
Liquidity management
policy purposes
2Y-10Y
3M, 6M, 1Y
14, 28, 63 and 182 days
2Y-6Y
Floating
Zero
Semi-annual
NA
30/360
Act/365
Issuer
Use of proceeds
Curve span
Common tenors
Coupon
Coupon frequency
Day count
Primary market
Auction day
Auction cut-off
Auction results
Auction style
Average issue size
Secondary market
Average trade size
Daily trading volume
Quotation convention
Settlement period
Bid/offer spread
Regulations
Custodian
NA
Thursday
Friday
NA
Multiple-price
NA
NA
Local custodian
Source: BB, Standard Chartered Research
Sub-Saharan Africa
Government bond issuance
Monthly bond issuance (AOA bn)
7
140
6
120
5
100
4
80
3
60
200
2
40
100
1
20
0
0
800
700
USD bn (RHS)
600
500
400
AOA bn (LHS)
300
0
2009
Source: BNA
2010
2011
2012
2009
2013
Source: BNA
176
2010
2011
2012
2013
Local Markets Compendium 2014
Angola
Rates
Market participants
Commercial banks
x Local banks are the main participants in the local market.
x There are 23 banks.
x Regulated by the BNA (www.BNA.ao)
Insurance companies
x There are 10 insurance companies but they are not significant players in the bond market.
x Their investment portfolios primarily comprise real estate and deposits, with insignificant exposure to bonds (2% of the
portfolio in 2010).
x Regulated by the ISS (this entity is under the Ministry of Finance; see http://www.iss.gv.ao)
Foreign investors
Foreign investor participation is negligible given exchange control regulations.
Others
There are five pension funds; their bond holdings are unknown but are likely to be negligible.
Source: Standard Chartered Research
Yield curve over time (%)
Debt profile (AOA bn)
16
14
End-2010
14
12
12
10
10
End-2011
8
8
2013
6
6
4
4
2
0
2
O/N1Y 2Y
3Y
4Y
5Y
6Y
7Y
2015
8Y
2016
2017
Source: BNA, Standard Chartered Research
Source: Bloomberg
Commercial banks – Asset growth
Credit to the government is declining
7
Assets
(AOA tn)
5
4
y/y growth
(%, RHS)
1
0
Dec-09
100
Dec-10
Jun-11
Source: BNA, Standard Chartered Research
Dec-11
Jun-12
20
Government
bonds % of
assets
60
10
40
5
24
22
80
18
16
14
12
0
Jun-10
LDR (%, LHS)
25
15
2
28
26
30
20
3
2019
120
35
6
2018
20
Q4-09
Dec-12
Source: BNA
177
10
Q2-10
Q4-10
Q2-11
Q4-11
Q2-12
Q4-12
Sub-Saharan Africa
End-2012
Local Markets Compendium 2014
Botswana
Delphine Arrighi | Sarah Baynton-Glen
General
Monetary policy framework
Monetary policy tools
Name
Policy target
Independence
Policy rate
Bloomberg ticker
Deciding body
Policy decision-making
Decision meeting
frequency
Announcement time
Press conference
Minutes published
Open-market
operations (OMOs)
Quarterly inflation
report
Reserve requirements
Primary reserve ratio: Deposits held in a non-interest-earning
account with the central bank; currently at 10%.
Bank of Botswana (BoB)
Current target is 3-6%
High
Bank rate
NA
Monetary Policy Committee
Monetary Policy Committee
Every 2 months
Open-market operations (OMOs)
Aimed at keeping the extent of liquidity tightness consistent
with announced monetary policy. To drain liquidity, 14- and
91-day certificated are used. To inject liquidity, repo
instruments are used.
Standing facilities
Secured lending facility linked to the bank rate and offered by
the central bank as lender of last resort.
NA
Same day
Available on website
To manage liquidity
Available on website
Source: BoB, Standard Chartered Research
Source: Standard Chartered Research
Sub-Saharan Africa
Exchange rate framework
Exchange rate regime
Crawling peg. The BWP exchange rate is officially determined with reference to a weighted
basket of currencies composed of the SDR (45%) and the ZAR (55%).
Exchange rate target
The rate of crawl of the BWP is set as the difference between the BoB’s inflation objective and
forecast inflation in major trading-partner countries. The current rate of the downward crawl is
-0.16% per annum.
Intervention instruments
The central bank provides unlimited spot liquidity according to its formula.
Convertible?
Fully
Deliverable?
Yes
Fixing time and place
Spot date, fixing
NA
Fixing methodology
NA
T+2, but most deals are based on today’s value
Source: Standard Chartered Research
Economic and financial indicators
Real GDP, change
CPI inflation*
Current account/GDP
FX res./imports**
Fiscal balance/GDP
Primary balance/GDP
Gen. govt. debt/GDP
External debt/GDP
1-day repo***
S&P
Country
Moody’s
rating
Fitch
2011
5.1
6.9
2.2
13.0
-2.2
-5.9
16.7
11.8
8.50
A-/A-2
A2
NA
*Yearly average; **months of imports; ***year-end;
Source: BoB, IMF, EIU
Government balances (% of GDP)
2012
3.8
7.5
4.9
14.9
0.3
0.1
14.9
11.0
9.50
NA
NA
NA
2013F
4.1
6.3
3.9
17.1
0.8
2.2
13.5
10.2
9.00
20
15
2014F
4.2
5.9
3.3
18.8
1.1
3.5
11.9
8.9
9.00
18
10
Fiscal balance
General govt.
debt (RHS)
16
14
5
12
10
0
8
6
-5
4
2
-10
0
2004 2005 2006 2007 2008 2009 2010 2011 2012F 2013F 2014F
Source: IMF
178
Local Markets Compendium 2014
Botswana
FX
Exchange rate products
Spot
Availability
Outright forwards
NDFs
Options
On a case-by-case
basis
Yes
Daily trading volume
(USD mn)
Average trade size
(USD mn)
Bid/ask spread in BWP
onshore*
Bid/ask spread in BWP
offshore*
Reuters ticker
50
3
1
2
FX swaps
Yes
50
NA
NA
3M 0.0006
NA
0.0004
NA
SCBG=
SCBG=
* For FX swaps, pips = FX swap points; Source: Standard Chartered Research
Exchange rate regulation – Non-residents
Spot
Underlying asset – Trade and FDI
Underlying asset – Financial asset
No underlying asset
Forwards
NDFs
No restrictions
Options
NA
FX swaps
No restrictions
p. 433 – IMF 2010 Annual report on exchange arrangements Non-residents may purchase up to 20% of the total value of government-issued T-bills and 2Y, 5Y, 12Y and 15Y bonds, at the time
of issue.
Non-residents are not permitted to purchase monetary instruments.
Exchange rate regulation – Residents
Residents can hold foreign-currency accounts.
Source: Standard Chartered Research - taken from annual African markets guide
Corporates
Real-money
funds
Hedge funds
Interbank
65% x Both exporters and importers tend to hedge when the trend is against them.
x Overall hedging activity, however, is low.
5% x Minimal; such participation, if any, is local.
0% x Minimal
30% x Most interbank transactions are need-based, with few dealers engaging in speculative trading and
most commonly covering with the central bank at the peg.
x Deals are mostly concentrated at the front end of the forward curve, i.e., 3-6M.
Source: Standard Chartered Research
USD-BWP – Trend depreciation vs. the USD
10
REER (RHS)
9
8
7
6
USD-BWP
5
4
3
2
1
0
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Source: Datastream
C/A surplus is shrinking (USD bn per quarter)
120
15
100
10
80
5
60
0
40
-5
20
-10
0
-15
C/A
Portfolio
Other
BoP
2004
Source: BoB
179
FDI
2005
2006
2007
2008
2009
2010
2011
2012
Sub-Saharan Africa
Market participants
Local Markets Compendium 2014
Botswana
Rates
Bonds
Bonds
Issuer
Use of proceeds
Curve span
T-bills
Government of Botswana
Fiscal financing
1Y-13Y
NA; programme with existing issues tapped at
auction
Fixed
Semi-annual
Act/365
Common tenors
Coupon
Coupon frequency
Day count
Primary market
Auction day
Auction cut-off
Auction results
Auction style
Average issue size
Secondary market
Average trade size
Daily trading volume
Quotation convention
Settlement period
Bid/offer spread
Regulations
Custodian
6M
Zero
NA
Act/365
Held semi-annually, in March and September
10:00
12:00
Single-price
BWP 900mn
BWP 1bn
NA
Yield
T+3
20bps
Local custodian
Sub-Saharan Africa
Source: Standard Chartered Research
Total outstanding BoBCs
25
USD bn (RHS)
3.0
2.5
20
2.0
15
1.5
10
BWP bn (LHS)
5
2002
1.0
0.5
2004
2006
2008
2010
2012
Source: BoB
Swaps
Floating-rate reference calculation
Cross-currency/interest rate
swap
Average daily market volume NA
Average ticket size
NA
Average bid/offer spread
NA
Term
1-5Y
Liquid up to
NA
Settlement
T+2
Coupon frequency
Quarterly
Convention
Act/365
Floating-rate reference
3M USD LIBOR
Floating-rate ticker
BoBC
Ticker (2Y)
BWSW2 Curncy
For cross-currency swaps, the floating-rate reference is the
3M BoBC.
Main product
Source: Standard Chartered Research
For interest rate swaps, the floating-rate reference is the 3M
BoBC.
Source: Bloomberg
180
Local Markets Compendium 2014
Botswana
Rates
Market participants
Commercial banks
x Commercial banks are the only permitted holders of short-term investment instruments, Bank of Botswana Certificates
(BoBCs).
x The development of an active secondary market has been hampered by the buy-and-hold approach adopted by most
investors.
x Regulated by BoB. (http://www.bankofbotswana.bw/)
Insurance companies and pension funds
x Insurance companies and pension funds are the main holders of government bonds.
x The Botswana Public Officers Pension Fund is the largest pension fund investor in government securities but remains
relatively inactive in the local bond market (buy and hold only).
x Regulated by the Non Bank Financial Institutions Regulatory Authority (NBFIRA). (www.nbfira.org.bw)
Foreign investors
x Non-residents cannot buy monetary instruments used by the BoB to absorb excess liquidity.
x Non-residents can purchase up to 20% of the total value of government-issued treasury bills and 2Y, 5Y, 12Y and 15Y bonds,
at the time of issue.
x We estimate that the share of foreign investors’ government bond holdings is negligible.
Source: Standard Chartered Research
Yield curve over time (%)
Debt profile (BWP bn)
10
10
End-2010
9
End-2009
8
2013
End-2011
8
6
End-2012
7
2
5
0
4
O/N 1Y
5Y
Source: BoB, Standard Chartered Research
2013
13Y
2017
Source: Bloomberg
181
2021
2025
2029
2033
2037
2041
2045
2049
Sub-Saharan Africa
4
6
Local Markets Compendium 2014
Cameroon
Victor Lopes
General
Monetary policy framework
Monetary policy tools
Name
Interest rates
The main instrument is the policy rate (TIAO, currently at
3.5%), set by the Monetary Policy Committee, which
represents the interest rate on the BEAC liquidity facilities.
Policy target
Independence
Policy rate
Bloomberg ticker
Deciding body
Policy decision-making
Decision meeting
frequency
Announcement time
Press conference
Minutes published
Open-market
operations (OMOs)
Quarterly inflation
report
Banque des Etats d’Afrique Centrale
(BEAC)
Price stability
High
TIAO
Monetary Policy Committee
Monetary Policy Committee
Quarterly
Reserve requirement
Reserve requirements are the other key liquidity management
tool in CEMAC countries (current ratios are 9.75% for current
accounts and 11.25% for fixed deposits).
NA
NA
NA
Yes
NA
Source: BEAC, Standard Chartered Research
Source: BEAC, Standard Chartered Research
Sub-Saharan Africa
Exchange rate framework
Exchange rate regime
Conventional peg. Member of the Central Africa Economic and Monetary Community (CEMAC)
Exchange rate target
EUR-XAF fixed at 655.957
Intervention instruments
Spot
Convertible?
Yes, RHS is regulated
Deliverable?
Yes, only in the franc zone
Fixing time and place
Spot date, fixing
NA
Fixing methodology
NA
T+2
Source: IMF, BEAC, Standard Chartered Research
Economic and financial indicators
Real GDP, change
CPI inflation*
Current account/GDP
FX res./imports**
Fiscal balance/GDP
Primary balance/GDP
Gen. govt. debt/GDP
External debt/GDP
Policy rate***
S&P
Country
Moody’s
rating
Fitch
2011
3.5
2.9
-3.8
4.7
-2.8
-1.5
13.9
7.3
4.0
B
NA
B
*Yearly average; **months of imports; ***year-end;
Source: IMF, IIF, MoF, Standard Chartered Research
Government balances (% of GDP)
2012
4.7
3.0
-4.0
3.6
-0.9
-2.7
14.8
9.0
4.0
B
NA
B
2013F
4.5
3.0
-3.8
2.9
-3.9
-3.2
17.7
9.7
3.5
35
2014F
4.5
2.5
-3.5
3.0
-4.6
-3.9
21.6
11.1
3.5
70
Fiscal balance
30
60
25
50
20
40
15
10
General govt.
debt (RHS)
5
30
20
0
10
-5
-10
0
2004 2005 2006 2007 2008 2009 2010 2011 2012F 2013F 2014F
Source: IMF
182
Local Markets Compendium 2014
Cameroon
FX
Exchange rate products
Availability
Daily trading volume
(USD mn)
Average trade size
(USD mn)
Bid/ask spread in XAF
onshore*
Bid/ask spread in XAF
offshore*
Reuters ticker
Spot
Yes
Outright forwards
NDFs
Options
Case-by-case basis
FX swaps
50
0.5
NA
NA
*Versus USD; for FX swaps, bid/ask spread refers to swap points vs. USD; Source: Standard Chartered Research
Exchange rate regulation – Non-residents
Underlying asset – Trade and FDI
Underlying asset – Financial asset
Spot
LHS: No restrictions;
RHS: documentation
needed
Forwards
NDFs
Options
Must be supported
by underlying trade
FX swaps
Must be supported
by underlying trade
Must be supported
by underlying trade;
declaration required
Authorised dealers
NA
Declaration required
No underlying asset
NA
Authorised dealers
Exchange rate regulation – Residents
Residents can hold foreign-currency accounts domestically with prior approval from the BEAC and MOBF.
Sub-Saharan Africa
Source: IMF, Standard Chartered Research
Market participants
Corporates
Real-money
funds
Hedge funds
Interbank
80% x Exporters sell FX to the spot market.
x Central bank supplies FX to importers on a case-by-case basis.
0% x NA
0% x NA
20% x Interbank market is non-existent; banks sell FX to each other on the basis of availability.
Source: Standard Chartered Research
XAF REER and NEER
C/A deficit is financed by capital inflows (USD mn per year)
140
C/A
600
150
FDI
Private capital
Other
400
REER
200
130
0
120
-200
110
NEER
-400
100
-600
BoP
-800
90
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Source: IMF
2008
Source: IMF
183
2009
2010
2011
2012
Local Markets Compendium 2014
Cameroon
Rates
Bonds
Bonds (OTA)
T-bills (BTA)
Government of Cameroon through the central bank
Fiscal financing
2Y-5Y
13, 26 and 52 weeks
2Y
Fixed
NA
Annual
Act/365
361 days
Issuer
Use of proceeds
Curve span
Common tenors
Coupon
Coupon frequency
Day count
Primary market
Auction day
Auction cut-off
Auction results
Auction style
Average issue size
Secondary market
Average trade size
Daily trading volume
Quotation convention
Settlement period
Bid/offer spread
Regulations
Custodian
Monthly auction
Weekly auction
NA
Single/multiple
XAF 15-50bn
Fixed-price
XAF 5-10bn
NA
Local custodian (Cellule de Règlement et de Conservation des Titres)
Sub-Saharan Africa
Source: BEAC, Standard Chartered Research
Issuance has increased since the creation of the local
bond market in 2010 (XAF bn)
300
250
200
150
100
50
0
2010
2011
2012
Source: BEAC
184
Local Markets Compendium 2014
Cameroon
Rates
Market participants
Commercial banks
x Local banks are the main participants in the bond market.
x There are 13 commercial banks in Cameroon (as of 2011).
CEMAC commercial bank & institutions
x The bond market is regional, so banks (and financial institutions) from the monetary union can participate in the market. In
2010, CEMAC banks and institutions represented 20% of Cameroon bond subscription.
x There are 33 banks in CEMAC (excluding those in Cameroon).
Foreign investors
Offshore investors’ presence is negligible.
Others
x Individual investors can also buy government bonds through their local banks, but the amount is limited (5% in 2010).
x Some local financial institutions are also active in the primary market, although they are not the key players.
Source: Standard Chartered Research
Commercial banks – Asset growth
Commercial banks’ contribution to government financing
is low but rising
16
90
3.5
14
80
3.0
12
2.5
10
2.0
8
4.0
1.5
1.0
Assets
(XAF bn)
40
4
20
2
10
0
2005
Source: BEAC
2006
2007
2008
2009
2010
2011
6
50
Government
bonds % of
assets
4
2
0
0
Q4-03 Q4-04 Q4-05 Q4-06 Q4-07 Q4-08 Q4-09 Q4-10 Q4-11 Q4-12
2012
Source: BEAC
185
Sub-Saharan Africa
0.5
0.0
2004
60
30
10
8
70
6
y/y growth
(%, RHS)
LDR (%, LHS)
Local Markets Compendium 2014
Côte d’Ivoire
Victor Lopes
General
Monetary policy framework
Monetary policy tools
Name
Interest rates
The repo rate is currently set at 4%, and the marginal rate of
liquidity injections (the BCEAO sets the minimum bidding rate)
is currently at 3%. These are the primary monetary policy tools
and aim to influence short-term interest rates in the money
market.
Policy target
Independence
Policy rate
Bloomberg ticker
Deciding body
Banque Centrale des Etats d’Afrique
de l’Ouest (BCEAO)
Objective of inflation at 2% +/- 1ppt
over a 24-month horizon
High
Repo rate
Governor, Monetary Policy
Committee, Board of Directors, Audit
Committee and National Credit
Council
Policy decision-making Monetary Policy Committee
Decision meeting
Quarterly
frequency
Announcement time
NA
Press conference
NA
Minutes published
NA
Open-market
Yes
operations (OMOs)
Quarterly inflation
Yes
report
Source: BCEAO, Standard Chartered Research
OMOs
The BCEAO conducts weekly OMOs for liquidity injections.
Reserve requirements
Aimed at influencing the volume of credit to the economy
(required reserve ratio is currently 5% of deposits).
Source: BCEAO, Standard Chartered Research
Sub-Saharan Africa
Exchange rate framework
Exchange rate regime
Conventional peg. Member of the West Africa Economic and Monetary Union (WAEMU)
Exchange rate target
EUR-XOF fixed at 655.957
Intervention instruments
Spot
Convertible?
Yes, RHS is regulated
Deliverable?
Yes, only in the franc zone
Fixing time and place
Spot date, fixing
NA
Fixing methodology
NA
T+2
Source: IMF, BB, Standard Chartered Research
Economic and financial indicators
Real GDP, change
CPI inflation*
Current account/GDP
FX res./imports**
Fiscal balance/GDP
Primary balance/GDP
Gen. govt. debt/GDP
External debt/GDP
Policy rate***
S&P
Country
Moody’s
rating
Fitch
2011
-4.7
4.9
1.0
4.6
-5.7
-2.9
71.2
55.0
4.3
NR
NR
NR
*Yearly average; **months of imports; ***year-end;
Source: IMF, IIF, MoF, Standard Chartered Research
Government balances (% of GDP)
2012
9.8
1.3
-1.8
4.7
-3.5
-3.0
45.6
30.8
4.0
NR
NR
NR
2013F
8.0
3.2
-2.5
4.9
-3.0
-1.5
43.2
29.9
3.8
100
0
2014F
7.5
2.5
-3.0
5.0
-3.0
-1.0
41.2
28.7
3.8
90
-1
-2
80
70
Fiscal balance
60
-3
50
General govt.
debt (RHS)
-4
40
30
20
-5
10
-6
0
2004 2005 2006 2007 2008 2009 2010 2011 2012F 2013F 2014F
Source: IMF
186
Local Markets Compendium 2014
Côte d’Ivoire
FX
Exchange rate products
Availability
Daily trading volume
(USD mn)
Average trade size
(USD mn)
Bid/ask spread in XOF
onshore*
Bid/ask spread in XOF
offshore*
Reuters ticker
Spot
Yes
Outright forwards
NDFs
Options
Case-by-case basis
FX swaps
30
0.5
NA
No two way quote
NA
*Versus USD; for FX swaps, bid/ask spread refers to swap points vs. USD; Source: Standard Chartered Research
Exchange rate regulation – Non-residents
Underlying asset – Trade and FDI
Spot
LHS: No
restriction; RHS:
Documentation
required
Forwards
NDFs
Options
Must be supported
by underlying
trade
FX swaps
Must be supported by
underlying trade
Must be supported
by underlying
trade; declaration
required
Authorised dealers
NA
Declaration
required
Underlying asset – Financial asset
No underlying asset
NA
Authorised dealers
Sub-Saharan Africa
Exchange rate regulation – Residents
Residents need BCEAO and the MOEF authorisation to open foreign-currency accounts.
Source: IMF, Standard Chartered Research
Market participants
Corporates
Real-money
funds
Hedge funds
Interbank
80% x Export proceeds to be surrendered to the central bank.
x Central bank supplies FX to importers on a case-by-case basis.
0% x NA
0% x NA
20% x Interbank market is non-existent; banks sell FX to each other on the basis of availability.
Source: Standard Chartered Research
XOF REER and NEER – Weakening slightly
Higher imports drive C/A weakening (XOF tn per year)
NEER
Other private capital
Other
1.0
150
0.5
140
REER
130
0.0
120
-0.5
110
-1.0
100
-1.5
Source: IMF
FDI
1.5
160
90
1994
C/A
2.0
170
BoP
-2.0
1997
2000
2003
2006
2009
2012
2008
Source: IMF
187
2009
2010
2011
2012
Local Markets Compendium 2014
Côte d’Ivoire
Rates
Bonds
Bonds
Issuer
Use of proceeds
Curve span
Common tenors
Coupon
Coupon frequency
Day count
Primary market
Auction day
Auction cut-off
Auction results
Auction style
Average issue size
Secondary market
Average trade size
Daily trading volume
Quotation convention
Settlement period
Bid/offer spread
Regulations
Custodian
T-bills
Government of Cote d’Ivoire
Fiscal financing
1-week, 1M, 3M, 6M, 1Y, 2Y
1Y-2Y
3Y-7Y
3Y-5Y
Fixed
Annual
Act/Act
NA
Act/360
Ad hoc
10:30 Local time
Same day
Multiple-price
XOF 25-60bn
XOF 40-60bn
NA
BCEAO
Local custodian
Source: BCEAO, Bloomberg, Standard Chartered Research
Sub-Saharan Africa
Government bond issuance in WAEMU zone has decreased
XOF tn
5
4
3
2
1
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: BCEAO
188
Local Markets Compendium 2014
Côte d’Ivoire
Rates
Market participants
Commercial banks
Ivorian banks are the main buyers of government T-bills and bonds.
WAEMU banks
Banks of other WAEMU countries (Benin, Burkina-Faso, Mali, Niger and Senegal) are also significant participants, as the Côte
d’Ivoire government is the largest issuer in the WAEMU zone.
Foreign investors
Offshore investors’ presence is negligible.
Source: Standard Chartered Research
Commercial banks – Asset growth
Commercial banks – annual data
120
20
6
110
5
100
15
4
3
Government
bonds % of
assets
Assets
(XOF tn)
2
1
LDR (%, LHS)
10
60
5
8
50
0
0
2007 2008 2008 2009 2009 2010 2010 2011 2011 2012 2012
Source: BCEAO
12
80
70
Assets growth
y/y % (RHS)
16
14
90
10
18
40
Q4-07
6
Q4-08
Q4-09
Q4-10
Q4-11
Q4-12
Source: BCEAO
Sub-Saharan Africa
189
Local Markets Compendium 2014
Ghana
Delphine Arrighi
General
Monetary policy framework
Monetary policy tools
Name
Policy target
Central bank rate
The policy rate is reviewed every 2 months by the Monetary
Policy Committee (MPC), and serves as an indication for the
interbank money market and for other interest rates in moneymarket transactions.
Sub-Saharan Africa
Bank of Ghana (BoG)
Single-digit CPI inflation target,
+/-2ppt
Independence
Medium
Policy rate
Prime rate
Bloomberg ticker
GHBRPOLA index
Deciding body
Monetary Policy Committee (5 BoG
officials and 2 outside experts)
Policy decision-making One man, one vote
Decision meeting
Every 2 months, beginning February
frequency
each year
Announcement time
3-day meeting (Monday to
Wednesday)
Press conference
Press release on Wednesday
Minutes published
MPC press statement same day
Open-market
To ensure policy rate maintained,
operations (OMOs)
manage liquidity
Quarterly inflation
Reports released every two months,
report
beginning February
Source: BoG, Standard Chartered Research
Reserve requirement
Banks are required to maintain the mandatory 9% reserve
requirement on domestic and foreign deposit liabilities in GHS
only. Since May 2012, banks can no longer hold reserves in
different currencies. All banks are also required to provide 100%
GHS cover for their vostro balances, to be maintained at the BoG.
OMOs
In May 2012, the BoG reintroduced the use of 30-, 60- and
270-day BoG bills for liquidity management purposes. The
central bank can vary the size of primary issuance of T-bills or
BoG bills to smooth out interbank liquidity on a weekly basis.
FX swaps
Foreign exchange operations (outright sales, purchases or
swaps) are used for monetary policy purposes. Ordinarily, the
BoG’s exchange rate policy is based on reserve targeting. On
occasions where reserves have exceeded the target, BoG has
used outright FX sales as a monetary policy tool. In this
regard, FX sales were used as a supplement to T-bill auctions
to mop up excess liquidity in the system.
Source: BoG, Standard Chartered Research
Exchange rate framework
Floating (IMF)
No target, little direct FX intervention, but regulations changed in May 2012
Through spot USD-GHS
Yes
Yes
06:40, Accra
T+2
NA
Exchange rate regime
Exchange rate target
Intervention instruments
Convertible?
Deliverable?
Fixing time and place
Spot date, fixing
Fixing methodology
Source: BoG, Standard Chartered Research
Economic and financial indicators
Government balances (% of GDP)
2011
2012
2013F
2014F
14.4
7.9
8.0
7.2
9.0
9.2
12.0
10.4
-9.2
-12.2
-11.9
-11
3.6
2.9
2.5
2.7
Fiscal balance/GDP
-5.1
-12.1
-10.0
-8.8
Primary balance/GDP
-5.4
-9.3
-6.9
-6.6
Gen. govt. debt/GDP
42.7
48.0
49.3
50.3
External debt/GDP
21.0
21.5
22.5
23.5
12.00
15.00
18.00
14.00
B
B
Moody’s
NA
NA
Fitch
B+
B+
Real GDP, change
CPI inflation*
Current account/GDP
FX res./imports**
Policy rate***
S&P
Country
rating
*Yearly average; **months of imports; ***year-end;
Source: BoG, IMF, Standard Chartered Research
0
70
-2
60
-4
50
-6
40
-8
30
-10
General govt.
debt (RHS)
-12
20
Fiscal balance
0
-14
2004 2005 2006 2007 2008 2009 2010 2011 2012F 2013F 2014F
Source: IMF, Standard Chartered Research
190
10
Local Markets Compendium 2014
Ghana
FX
Exchange rate products
Spot
Availability
Daily trading volume
(USD mn)
Average trade size
(USD mn)
Bid/ask spread in GHS
onshore*
Bid/ask spread in GHS
offshore*
Reuters ticker
Outright forwards
Yes
40
30
0.25
1
NDFs
Options
FX swaps
Yes
30
3
NA
0.0025
1M 0.006
1M 0.0050
NA
NA
SCAF
SCAF
* For FX swaps, pips = FX swap points; Source: Standard Chartered Research
Exchange rate regulation – Non-residents
Underlying asset – Trade and FDI
Underlying asset – Financial asset
Spot
Forwards
No restrictions
Restricted to government bonds
of minimum 3Y tenor at issuance
No underlying asset
NDFs
Options
FX swaps
Restricted underlying trade
required
NA
Authorised
dealers only
Authorised dealers only
Non-residents can hold foreign exchange accounts in Ghana.
Non-residents are permitted to maintain foreign-currency accounts with domestic banks, which can be credited with transfers in foreign currency from abroad or other foreign-currency accounts.
For more details see BoG website, including the following link: http://www.bog.gov.gh/privatecontent/File/Secretarys/THE%20FOREIGN%20EXCHANGE%20ACT%202006.pdf
Exchange rate regulation – Residents
Residents can hold foreign exchange accounts in Ghana.
Market participants
Corporates
Real-money
funds
Hedge funds
Interbank
40% x Exporters with USD receivables rarely enter USD-GHS forward contracts owing to GHS depreciation
trend.
x Importers often enter into USD-GHS forwards owing to GHS depreciation trend.
20% x Real-money flows have slowed marginally, but persist because of the continued perception of a stable
economic outlook and relatively high yields.
x Real-money funds invest in 3Y-and-above government bonds owing to regulations.
15% x Hedge funds have grown thanks to the relaxation of restrictions on investment in the T-bond market,
with the central bank willing to provide USD-GHS liquidity support on exit.
x Investors still face restrictions on RHS if funds are not invested in equities or the T-bond market.
25% x Interbank trading is mainly flow-driven and short-term in nature.
Source: Standard Chartered Research
GHS REER and NEER – The NEER is trending lower
CA continues to deteriorate (USD bn)
100
6
90
4
C/A
FDI
Portfolio
80
70
BoP
2
REER
60
Other
0
50
-2
40
30
-4
20
-6
10
0
1999
Source: BIS
NEER
-8
2001
2003
2005
2007
2009
2011
2008
Source: IMF
191
2009
2010
2011
2012
Sub-Saharan Africa
Source: BoG, Standard Chartered Research
Local Markets Compendium 2014
Ghana
Rates
Bonds
BoG bills
Bank of Ghana
Issuer
Use of proceeds
T-bills
Liquidity management
Curve span
Common tenors
Coupon
Coupon frequency
Day count
Primary market
Auction day
Auction cut-off
Auction results
Auction style
Average issue size
Secondary market
Average trade size
Daily trading volume
Quotation convention
Settlement period
Bid/offer spread
Regulations
Custodian
T-notes
Republic of Ghana
Fiscal and infrastructure
financing
Fiscal financing
28-day to 9M
91- and 182-day
T-bonds
1Y-2Y
Issued at discount
NA
3Y-7Y
Fixed rate
Semi-annual
Act/365
Ad-hoc
Friday
Thursday
14:30
13:00
NA
Single-price
GHS 50mn
GHS 150-350mn
17:00
NA
GHS 50mn
No trading
NA
Gross yield: 2 decimal places, Price: 4 decimal places
T+1
NA
Non-residents and foreign investors not eligible
Single-price
GHS 300mn
GHS 5mn
T+2
50bps
Local custodian
Sub-Saharan Africa
Source: Bloomberg, Standard Chartered Research
Debt issuance is rising
18
16
14
12
10
8
6
4
2
0
2005
USD bn (RHS)
GHS bn (LHS)
2006
2007
2008
2009
2010
2011
9
8
7
6
5
4
3
2
1
0
2012
Source: BoG
Swaps
Floating-rate reference calculation
Cross-currency swaps/interest
rate swaps
Average daily market volume NA
Average ticket size
NA – bilateral trades
Average bid/offer spread
150bps
Term
1-5Y
Liquid up to
NA
Settlement
T+2
Coupon frequency
Quarterly/semi-annually
Convention
Act/360 – Act/365
Floating-rate reference
3M US LIBOR/3M or 6M T-bill
Floating-rate ticker
As applicable
Ticker (2Y)
GSSWL2/GSSW2 (Bloomberg)
For cross-currency swaps, the floating-rate reference is 3M
US LIBOR.
Source: Bloomberg, Reuters, Standard Chartered Research
Source: Bloomberg
Main product
For interest rate swaps, the floating-rate reference is the 3M or
6M T-bill.
192
Local Markets Compendium 2014
Ghana
Rates
Account opening
Cash account
Local bank
Depository account
Local custodian (and
registered at the Central
Securities Depository)
Trading account
Yes
Process duration
Approximately 2-5 days
Special requirements
None
Trade and settlement flowchart
Local custodian
3. Settlement Instruction (by 12:00, TD)
4. Money Wire and FX & Transfer
Instruction (by 12:00, TD)
5. Trade matching
8. Transfer of funds
(by 15:00, TD)
Omnibus/Investor’s
sub-account
Local Bank
FX conversion
Investor
FCY A/C
1. Transaction execution
Foreign
Investor
2. Confirmation
Investor
GHS A/C
Government
securities
dealer (GSD)
Bond A/C
6. Trading Report
Investor
GSD
7. Transfer of securities (TD)
CSD: Central Securities Depository
* For OTC transactions, counterparties can make other
arrangements, e.g. T+2 or T+3
Source: Standard Chartered Research
Regulations and taxation
Tax types
Additional notes
Foreign investment regulations Restricted
Income tax for non-residents
Exempt
Capital gains tax
None
Non-residents and foreign investors can only purchase T-bonds of
tenors of 3Y and above at issuance. Foreign investors exiting GHS
bond positions are expected to provide proof of initial inflow.
Source: Bloomberg, Reuters, Standard Chartered Research
193
Sub-Saharan Africa
CSD
Local Markets Compendium 2014
Ghana
Rates
Market participants
Domestic banks
x Domestic banks remain the main holders of government bonds.
x Their share of the total outstanding has decreased over time.
x Banks are not very active in secondary trading, despite a shorter list of Primary Dealers.
x Regulated by BoG (http://www.bog.gov.gh/)
Insurance companies and pension funds
x Social Security and National Insurance Trust (SSNIT) is the government-run national pension fund.
x SSNIT is the largest single investor in government securities but is relatively inactive in the local bond market (buy and hold
only). Its share of the total has increased steadily in recent years.
x Insurance companies own less than 1% of the total outstanding.
x Regulated by National Pension Regulatory Authority (http://www.presidency.gov.gh/our-government/agencies-commissions/
national-pension-regulatory-authority)
Foreign investors
x Non-residents have to open a book-entry account and fund account with a clearing bank.
x The book-entry account should be under the name of ‘XXX fund under trust of XYZ custodian institution’.
x Foreign investors can only invest in government bonds of tenors of 3Y and above at issuance.
x New portfolio flows boosted the share of foreign holdings to 28% in 2012, but have slowed again in 2013.
Others (including mutual funds and retail bond holders)
x Money-market funds can invest across the maturity spectrum.
x Retail investors have been more active in the past due to the launch of the retail Jubilee bond.
x Regulated by BoG (http://www.bog.gov.gh/)
Source: BoG, Standard Chartered Research
Sub-Saharan Africa
Ownership by participant (GHS bn)
Ownership by participant (%)
7
50
6
40
5
Banks
Banks
Foreigners
Foreigners
30
4
BoG
3
Others
20
BoG
2
0
Dec-10
10
SSNIT
Others
1
Insurance
Jun-11
Dec-11
Jun-12
SSNIT
Insurance
0
Dec-10
Dec-12
Jun-11
Dec-11
Jun-12
Dec-12
Source: BoG, Standard Chartered Research
Source: BoG, Standard Chartered Research
Yield curve over time (%)
Debt profile – Government securities (GHS bn)
30
10
End-2009
25
8
2013
20
15
4
End-2011
End-2010
10
5
6
End-2012
2
0
O/N 3M 6M
1Y
2Y
Source: Reuters, Standard Chartered Research
3Y
4Y
5Y
2013
2014
2015
Source: Bloomberg, Standard Chartered Research
194
2016
2017
Local Markets Compendium 2014
Ghana
Rates
Commercial banks – Asset growth is stabilising
30
Commercial banks – loan growth lifts LDR
90
70
Assets
(GHS bn)
60
25
22
Government
bonds % of
assets
80
20
50
20
40
70
30
60
18
16
15
10
y/y growth
(%, RHS)
5
0
2005
50
10
2007
2008
2009
2010
2011
12
40
Q4-07
0
2006
14
LDR (%, LHS)
20
2012
10
Q4-08
Q4-09
Q4-10
Q4-11
Q4-12
Source: BoG, Standard Chartered Research
Source: BoG, Standard Chartered Research
Pension funds – AUM continues to grow
Cross-sectional comparison of pension funds (2012)
14
3.0
12
2.5
10
2.0
8
1.5
6
Assets
(GHS bn)
1.0
4
2
0.5
0.0
2004
2005
2006
2007
2008
2009
2010
CH
IL
10K
NA ZA
1K
NG LK
100KE
TH
BG
US
HK
JP
FR
SG
NO
AT
HU
DE
MT
GH
UG
CS
10
GR
UA
1
0
2011
0
5
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
Source: OECD, FIAP, Swiss Re, IMF, local sources including
pension fund associations, Ministry of Finance, central banks
195
50
55
60
65
Sub-Saharan Africa
Source: SSNIT
100K
16
Bonds as % of
assets (RHS)
3.5
Pension fund/capita (USD)
4.0
Local Markets Compendium 2014
Kenya
Delphine Arrighi
General
Monetary policy framework
Monetary policy tools
Name
Policy target
Independence
Policy rate
Bloomberg ticker
Deciding body
Policy decision-making
Decision meeting
frequency
Announcement time
Press conference
Minutes published
Open-market
operations (OMOs)
Quarterly inflation
report
Central bank rate (CBR)
The Central Bank Rate is reviewed every 2 months by the
Monetary Policy Committee (MPC). The CBK has embarked
on an easing cycle in H2-12 and has continued to use OMOs
to fine-tune its monetary policy
Central Bank of Kenya (CBK)
CPI inflation of 5%, +/-2%
Low
Central Bank Rate
KNRECBRT index
Monetary Policy Committee
One man, one vote
Every two months
NA
NA
NA
Very active usage to manage liquidity
Weekly bulletin published on CBK
website
OMOs
OMO instruments include T-bill issuance, both windows of the
repo facility, and term auction deposits.
Cash reserves ratio (CRR)
Commercial banks are required to deposit 5.25% of their total
domestic- and foreign-currency deposit liabilities with the CBK.
To facilitate commercial banks’ liquidity management, they are
required to maintain their CRR at the average for the period
from the 15th of the previous month to the 14th of the current
month and a minimum CRR of 3% on a daily basis.
Source: CBK, Standard Chartered Research
Sub-Saharan Africa
Discount window rate
After a number of policy changes in 2011 to how the discount
window operated, the discount window rate has been restored
as the rate at which the CBK will lend secured short-term
loans to commercial banks on an overnight basis at a punitive
rate, thus restricting banks to seeking funding at the CBK as a
lender of last resort.
Source: CBK, Standard Chartered Research
Exchange rate framework
Exchange rate regime
Floating (IMF)
Exchange rate target
No target, little FX intervention
Intervention instruments
Through spot USD-KES
Convertible?
Yes
Deliverable?
Yes
Fixing time and place
Spot date, fixing
06:30, Nairobi
Fixing methodology
Typically the average of 5 banks’ rates, picked from Reuters
NA
Source: CBK, Standard Chartered Research
Economic and financial indicators
Real GDP, change
Government balances (% of GDP)
2011
2012
2013F
2014F
4.9
5.5
5.9
6.2
CPI inflation*
14.0
9.6
5.6
7.1
Current account/GDP
-9.3
-9.1
-12.2
-11.0
4.0
4.0
4.1
4.2
-4.150
-5.270
-4.570
-4.026
FX res./imports**
Fiscal balance/GDP
Primary balance/GDP
-1.870
-2.916
-2.368
-2.030
Gen. govt. debt/GDP
48.940
48.185
47.863
47.257
22.0
21.7
22.0
21.5
18.00
11.50
8.50
9.00
S&P
B+
B+
Moody’s
NA
NA
Fitch
B+
B+
External debt/GDP
Policy rate***
Country
rating
*Yearly average; **months of imports; ***year-end;
Source: Reuters, IMF, CBK, Standard Chartered Research
0
70
-1
60
50
-2
40
-3
General govt.
debt (RHS)
30
-4
20
-5
Fiscal balance
0
-6
2004 2005 2006 2007 2008 2009 2010 2011 2012F 2013F 2014F
Source: IMF, Standard Chartered Research
196
10
Local Markets Compendium 2014
Kenya
FX
Exchange rate products
Availability
Daily trading volume
(USD mn)
Average trade size
(USD mn)
Spot
Outright forwards
NDFs
Yes
Options
FX swaps
100
20
NA
On request
150
1
Bid/ask spread in KES
onshore*
5
0.1
Bid/ask spread in KES
offshore*
Reuters ticker
1M 0.3, 2M 0.6,
3M 0.8, 6M 1.8,
1Y 3.3
NA
1M 0.4, 2M 0.7,
3M 0.9, 6M 1.9,
1Y 3.4
1M 0.7
NA
SCAH
OTC
SCAH
* For FX swaps, bid/ask spread refers to swap points; Source: Standard Chartered Research
Exchange rate regulation – Non-residents
Spot
Forwards
Underlying asset – Trade and FDI
Underlying asset – Financial asset
NDFs
Options
FX swaps
No tenor below 1Y, minimum
1-week holding period
No restrictions
RHS swap not allowed if no
underlying asset
No underlying asset
There are no restrictions on transactions relating to the current and capital accounts.
However, since H2-2011, outright lending to offshore banks is only allowed for a minimum tenor of 1Y. FX swaps to offshore banks can only be for a minimum of 1Y
For more details, see the CBK website, including the following link: http://www.centralbank.go.ke/downloads/acts_regulations/foreignexchangeguidelines.pdf,
http://www.centralbank.go.ke/downloads/circulars/banking/BC082011.pdf, http://10.176.13.237:8080/downloads/acts_regulations/prudential_guidelines_2006.pdf,
http://10.176.13.237:8080/downloads/bsd/bsdsoftware/bsmguidelines1.pdf
Exchange rate regulation – Residents
Sub-Saharan Africa
Residents can hold foreign exchange accounts.
Source: Standard Chartered Research
Market participants
Corporates
Real-money
funds
Hedge funds
Interbank
63% x Exporters sell FX to the market (both spot and forward) in exchange for KES.
x Importers buy FX in both spot and forwards and sell KES.
1% x FX activity in this sector is very limited.
6% x Hedge funds have little involvement in the money market; they sell/buy KES for participation in the
equity market.
x Investors buy/sell securities, but very limited volumes.
30% x Interbank trading is mainly flow-driven and short-term in nature.
Source: Standard Chartered Research
USD-KES – Trend KES depreciation vs. USD
150
140
130
120
110
100
90
80
70
60
50
1994
Source: BIS
The C/A deficit is deteriorating (USD bn, annual)
C/A
4
3
FDI
Portfolio
Other
BoP
2
1
0
-1
-2
-3
-4
-5
1997
2000
2003
2006
2009
2012
2005
Source: IMF
197
2006
2007
2008
2009
2010
2011
2012
2013
Local Markets Compendium 2014
Kenya
Rates
Bonds
T-bills
Issuer
Liquidity management/fiscal
financing
Use of proceeds
Curve span
Common tenors
Coupon
Coupon frequency
Day count
Primary market
Auction day
Auction cut-off
Auction results
Auction style
Average issue size
Secondary market
Average trade size
Daily trading volume
Quotation convention
Settlement period
Bid/offer spread
Regulations
Custodian
T-bonds
Treasury
Term auction deposit
Fiscal financing
Liquidity management
2Y-30Y
2Y, 5Y, 7Y, 10Y, 15Y, 20Y
Fixed
Semi-annual
Act/365
91- to 364-day
NA
7- to 28-day
NA
Wednesday/Thursday
Wednesday
T+1 from 17:00-18:00
14:00
Friday
T+1 17:00-18:00
Multiple-price (three decimals)
KES 2-5bn
KES 18-20bn (across 2 tenors)
KES 100mn
NA
Yield (three decimal places)
T+3
15bps
No fixed schedule
12:00
Yield
Variable
NA
Yield
50bps
Local custodian
T+0
NA
NA
Sub-Saharan Africa
Source: Bloomberg, Standard Chartered Research
Steady rise of the government bond market
1.2
14
1.0
12
10
0.8
8
USD bn (RHS)
0.6
6
0.4
4
KES tn (LHS)
0.2
0.0
2001
2
0
2003
2005
2007
2009
2011
2013
Source: CBK
Swaps
Floating-rate reference calculation
Cross-currency swaps/interest
rate swaps
Average daily market volume NA
Average ticket size
NA - bilateral trades
Average bid/offer spread
150bps
Term
1-5Y
Liquid up to
NA
Settlement
T+2
Coupon frequency
Quarterly/Semi-annually
Convention
Act/360 - Act/365
Floating-rate reference
As applicable
Floating-rate ticker
As applicable
KSSWL2/KSSW02
Ticker (2Y)
(Bloomberg)
For cross-currency swaps, the reference rate is 3M US
LIBOR.
Source: Bloomberg, Reuters, Standard Chartered Research
Source: Bloomberg
Main product
For interest rate swaps, the floating-rate reference is the 3M or
6M T-bill.
198
Local Markets Compendium 2014
Kenya
Rates
Account opening
Cash account
Local bank
Special requirements
None
Depository account
Local custodian
Trading account
Yes
Process duration
Approximately 2-5 days
Trade and settlement flowchart
Local custodian
1a. Advise intention to trade (TD)
4. Settlement Instruction
5. Money Wire and FX & Transfer Instruction
6. Trading Report (TD)
Omnibus/Investor’s
sub-account
1b. Advise intention to trade
(TD)
7. Settlement instruction
(by T+3)
Local Bank
FX conversion
2. Transaction execution
Foreign
Investor
Counterparty
3. Confirmation
Investor
FCY A/C
Investor
KES A/C
Settlement and clearing
CBK
Bond A/C
Investor
Counterparty
Cash A/C
Investor
CBK: Central Bank of Kenya
Counterparty
Source: Standard Chartered Research
Regulations and taxation
Tax types
Additional notes
Foreign investment regulations Not restricted
Income tax for non-residents
15%
Capital gains tax
30% corporate tax
Non-residents with permanent establishments in Kenya - 37.5%.
Non-residents without permanent establishment are subject to
withholding tax of 15%, or 10% on dividends earned.
Source: CBK, Standard Chartered Research
199
Sub-Saharan Africa
8. DVP Settlement
(by 10:00, T+3)
Local Markets Compendium 2014
Kenya
Rates
Market participants
Banks
x Banking institutions are the largest investor group, holding about 50% of total outstanding government securities.
x Their share of holdings has recovered since H1-2011 as liquidity conditions have normalised.
x There are 44 banks; all are required to have separate investment, trading and available-for-sale accounts. They tend to have
the majority of their bond holdings in the investment account; only around 9 of 44 banks regularly trade in the secondary
market.
x Regulated by the CBK (http://www.centralbank.go.ke/)
Mutual and pension funds
x Asset managers and pension funds are the second-largest group of investors, holding approximately 25% of government
securities. There are 16 pension funds in Kenya. The largest is the National Social Security Fund.
x Their investment approach is generally conservative, given that most of their funds originate from pension schemes. Hence,
the bulk of their holdings is in government securities, with floating-rate/corporate paper representing a very small portion of
the portfolio. They are mostly active in the primary market, pursuing a ‘buy and hold’ strategy and favouring the long end of
the curve.
x Regulated by the Capital Market Authority (http://www.cma.or.ke/)
Sub-Saharan Africa
Insurance companies
x There are 45 insurance companies in Kenya, with holdings representing approximately 10% of the outstanding government
bond market. Insurance companies tend to target the longer tenors in an attempt to match assets and liabilities. Like pension
funds, they are mostly active in the primary market, pursuing a ‘buy and hold’ strategy.
x Regulated by the Insurance Regulatory Authority under the Finance Act and Insurance Act (http://www.ira.go.ke/)
Foreign investors
x The share of foreign investors’ government bond holdings has increased post-2013 elections but remains low, below 2% of
the total outstanding.
x Foreign investors can be split into two groups: real-money investors, who tend to buy and hold over a medium- to long-term
horizon, and hedge funds, characterised by a shorter investment horizon.
x Regulated by the CBK (http://www.centralbank.go.ke/)
Source: CBK, IRA, CMA
Ownership by participant (KES bn)
Ownership by participant (%)
600
60
Commercial
Banks
500
Commercial
banks
50
400
40
300
Foreigners
200
NBFI
Others
100
0.0
2006
2007
2008
30
Parastatals Pension funds
NBFI
CBK
2010
2011
Parastatals
2012
Foreigners
Pension funds
CBK
Insurance
Insurance
2009
Others
20
10
0
2006
2013
2007
2008
2009
2010
2011
2012
Source: CBK, Standard Chartered Research
Source: CBK, Standard Chartered Research
Yield curve over time (%)
Debt profile – Government securities (KES bn)
2013
250
25
End-2011
200
20
15
End-2009
150
2013
End-2012
100
End-2010
10
50
5
0
0
O/N1Y 2Y 3Y
5Y
7Y
9Y10Y
15Y
Source: Reuters, Standard Chartered Research
20Y
25Y
2013
30Y
2016
2019
2022
2025
2028
Source: Bloomberg, Standard Chartered Research
200
2031
2034
2037
2040
Local Markets Compendium 2014
Kenya
Rates
Commercial banks – Asset growth is stabilising
1.8
Commercial banks – LDR is trending higher
Assets
(KES tn)
1.7
28
1.6
26
1.5
24
1.4
22
1.3
y/y growth
(%, RHS)
1.2
20
18
1.1
16
1.0
14
0.9
Jan-09
82
LDR (%, LHS)
80
78
76
74
72
70
68
Government
66
bonds % of
64
assets
62
Q2-08 Q4-08 Q2-09 Q4-09 Q2-10 Q4-10 Q2-11 Q4-11 Q2-12
30
12
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Source: CBK, Standard Chartered Research
Source: CBK, Standard Chartered Research
Insurance sector – Assets are growing (KES bn)
Cross-sectional comparison of insurance density (2012)
10K
Insurance density (USD)
250
200
150
100
CH
MT
22
20
18
16
SG
TT
AO
UY
KE
10
24
BH
OM
LT
100
26
AE
PT
ZA
1K
USHK NO
28
SV
NG
50
1
0
2004
0
2005
2006
2007
2008
2009
2010
5
10
15
2011
20 25 30 35 40 45
GDP PPP/capita (USD '000)
50
55
60
Source: Swiss Re, IMF, Standard Chartered Research
Growing ownership of government bonds
Cross-sectional comparison of pension funds (2012)
120
100K
Portfolio (govt.
pension fund),
KES bn
100
80
Pension fund/capita (USD)
30
25
20
60
15
40
10
Bond % of
portfolio (RHS)
20
CH
IL
10K
NA ZA
1K
LK
KE
100
TH
BG
HK
JP
FR
SG
NO
AT
HU
DE
MT
GH
NG
UG
US
Sub-Saharan Africa
Source: Association of Kenyan Insurers
65
CS
10
GR
UA
5
1
0
2004
0
2005
2006
Source: NSSF, Standard Chartered Research
2007
2008
0
2009
5
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
Source: OECD, FIAP, Swiss Re, IMF, local sources including
pension fund associations, Ministry of Finance, central banks
201
50
55
60
65
Local Markets Compendium 2014
Mauritius
Delphine Arrighi | Sarah Baynton-Glen
General
Monetary policy framework
Monetary policy tools
Name
Policy target
Independence
Reserve requirements
Banks are required to maintain weekly average cash balances
at the Bank of Mauritius equivalent to 7% of their average
deposit liabilities in the two weeks preceding the maintenance
period. The cash reserve ratio should not fall below 5% on any
particular day during the maintenance period.
Sub-Saharan Africa
Bank of Mauritius (BoM)
4-6% CPI inflation target range
High, under the Bank of Mauritius Act
2004
Policy rate
Repo rate
Bloomberg ticker
NA
Deciding body
Monetary Policy Committee (BoM
governor, 3 BoM members, 5 external
members; all are voting members)
Policy decision-making Monetary Policy Committee
Decision meeting
Quarterly
frequency
Announcement time
13:00 Port Louis time
Press conference
Day of the MPC meeting
Minutes published
2 weeks after meeting
Open-market
To manage liquidity
operations (OMOs)
Quarterly inflation
End of Apr/Oct and monthly
report
OMOs
In order to sterilise excess liquidity stemming from capital
inflows, the bank issues Bank of Mauritius Bills. The BoM sells
91-, 182-, 273- and 364-day T-bills and 5Y government bonds.
Repo rate
The key repo rate (KRR) serves as an indicative rate for
transactions in the interbank money market and for other
interest rates in money-market transactions. It is currently set
at 4.9%, with an interest rate corridor of +/- 125bps.The Bank
of Mauritius lends money to banks at the ceiling of the
‘corridor’, which is set at 125bps above the repo rate. In a
similar manner, the BoM will absorb excess funds at the floor
of the ‘corridor’, which is set at 125bps below the repo rate.
Standing facility
The BoM provides a collateralised overnight facility to banks
under a standing facility without a borrowing quota. The
interest rate chargeable on the standing facility is set at
400bps above the repo rate.
Source: BoM, Standard Chartered Research
Source: BoM Standard Chartered Research
Exchange rate framework
Exchange rate regime
Free floating (IMF)
Exchange rate target
No target exchange rate; BoM intervention is aimed largely at preventing exchange rate volatility
Intervention instruments
Through spot USD-MUR
Convertible?
Yes
Deliverable?
Yes
Fixing time and place
Spot date, fixing
NA
Fixing methodology
NA
T+2; same-day value is common in commercial dealing
Source: IMF, BoM, Standard Chartered Research
Economic and financial indicators
Real GDP, change
CPI inflation*
Current account/GDP
FX res./imports**
Fiscal balance/GDP
Primary balance/GDP
Gen. govt. debt/GDP
External debt/GDP
Repo rate***
S&P
Country
Moody’s
rating
Fitch
2011
4.0
6.5
-10.3
4.5
-4.8
0.6
42.4
8.5
5.40
NA
Baa2
NA
*Yearly average; **months of imports; ***year-end;
Source: IMF, BoM, CSO, Standard Chartered Research
Government balances (% of GDP)
2012
3.3
4.8
-10.3
4.9
-1.8
-0.5
40.5
8.7
4.90
NA
Baa1
NA
2013F
3.5
4.4
-10.2
6.0
-2.2
-0.6
38.1
10.3
4.65
2014F
4.2
4.5
-9.8
6.0
-2.0
0.7
37.6
12.4
5.15
0
60
-1
50
-2
40
General govt.
debt (RHS)
-3
-4
20
-5
Fiscal balance
10
0
-6
2004 2005 2006 2007 2008 2009 2010 2011 2012F 2013F 2014F
Source: BoM
202
30
Local Markets Compendium 2014
Mauritius
FX
Exchange rate products
Spot
Availability
Outright forwards
On a case-by-case
basis
Yes
Daily trading volume
(USD mn)
Average trade size
(USD mn)
Bid/ask spread in MUR
onshore*
Bid/ask spread in MUR
offshore*
Reuters ticker
NDFs
Options
FX swaps
On a case-by-case basis
20
10
0.5
3
NA
NA
NA
NA
.002
0.22
SCAG
SCAI=
*Versus USD; for FX swaps, bid/ask spread refers to swap points vs. USD; Source: Standard Chartered Research
Exchange rate regulation – Non-residents
Spot
Underlying asset – Trade and FDI
Underlying asset – Financial asset
No underlying asset
Forwards
NDFs
No restrictions
Options
NA
FX swaps
No restrictions
No regulations for non-residents
Exchange rate regulation – Residents
x No specific exchange rate regulations apply to residents.
x For all local banks, FX NOP is a maximum of 15% of Tier 1 capital overall, and maximum 10% per currency.
x FX card rates offered by local banks should not be more than 3% from interbank FX rates.
Market participants
Corporates
Real-money
funds
Hedge funds
Interbank
65% x
x
15% x
x
Importers generally buy USD-MUR spot; exporters sell EUR-MUR, USD-MUR and GBP-MUR spot.
Hedging activity with FX forwards or options is generally limited.
Activity of offshore real-money funds in local stock, bond and real-estate markets is limited.
Onshore real-money funds are less active in FX markets than onshore corporates given limited crossborder investment activity.
1% x Activity of offshore hedge fund investors in the local stock, bond and FX markets is limited.
19% x Most interbank FX dealing is squaring of client deals among banks or directly with the BoM.
x Speculative proprietary FX positions are concentrated in liquid G7 currencies (not involving MUR).
Source: Standard Chartered Research
USD-MUR and REER – Trend MUR depreciation vs. USD
The C/A remains in deficit (USD bn per quarter)
45
2
100
40
-2
95
35
90
30
105
REER
(MERI1)
0
-4
-6
-8
-10
USD-MUR
(RHS)
85
80
1997
-12
25
-14
-16
20
2000
2003
Source: Reuters, Standard Chartered Research
2006
2009
2004
2012
Source: BoM
203
2005
2006
2007
2008
2009
2010
2011
2012
2013
Sub-Saharan Africa
Source: Standard Chartered Research
Local Markets Compendium 2014
Mauritius
Rates
Bonds
Treasury Bills
Bank of Mauritius
Bills
Treasury Notes
Issuer
Government of
Mauritius
Bank of Mauritius
Government of
Mauritius
Use of proceeds
Fiscal financing
Money supply
management
3M, 6M, 9M, 12M
3M, 6M, 12M
NA
Sub-Saharan Africa
Curve span
Common tenors
Coupon
Coupon frequency
Day count
Primary market
Auction day
Auction cut-off
Auction results
Auction style
Average issue size
Secondary market
Average trade size
Daily trading volume
Quotation convention
Settlement period
Bid/offer spread
Regulations
Custodian
5Y Government of
Mauritius Bonds
Government of
Mauritius
Fiscal financing
2Y, 3Y, 4Y
2Y and 3Y
Zero
NA
5Y
Fixed
Semi-annual
Act/365
Usually monthly
10:00
Inactive since 2010
NA
Same day
Discriminatory (yield)
NA
Usually bi-monthly
10:00
NA
Yield
Price
T+2
40-50bps in yield
NA
50-100bps in yield
Securities account with banks/brokers
Source: BoM, Standard Chartered Research
Steady rise of the government bond market
150
140
130
120
110
100
90
80
70
60
2006
Secondary trading volume (MUR bn)
6.0
Total govt debt
(MUR bn)
3.0
5.5
2.5
5.0
2.0
4.5
USD bn (RHS)
4.0
1.5
3.5
1.0
3.0
0.5
2.5
0.0
Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13
2.0
2007
2008
2009
2010
2011
2012
Source: BoM
Source: BoM
Floating-rate reference calculation
The Port Louis Interbank Offered Rate (PLIBOR) is based on
rates contributed by banks that are members of the Port Louis
Automated Clearing House. An individual PLIBOR contributor
bank contributes the rate at which it could lend funds, were it
to do so by quoting for and accepting interbank offers in a
reasonable market size.
Source: BoM
204
Local Markets Compendium 2014
Mauritius
Rates
Market participants
Commercial banks
x Local commercial banks are active at the front end of the curve, mostly in T-bills and 2Y-3Y government bonds.
x Given caps introduced by BoM on T-bill holdings (18% of deposit base for banking book) and maturity extension efforts by the
government (including a nominal decrease in T-bill issuance), duration may have increased in the last few months.
Insurance companies/real-money funds
x Insurance companies are active across the curve, but want to increase maturities due to ALM mismatches.
x Long-dated MUR-denominated paper is lacking, despite government efforts to extend the maturity profile of its debt.
x Longer-term inflation-linked bonds have attracted interest from the insurance segment.
Foreign investors
In H1-2012, foreign investment in the local bond market across the curve rose >200% versus H1-2011, largely due to the
attractive yield pick-up and the upgrade by Moody’s to Baa1.
Retail
Limited participation at the front end of the curve or secondary market on stock exchange through security brokers.
Source: Standard Chartered Research
Yield curve over time (%)
Debt profile (MUR bn)
11
End-2009
9
50
End-2011
End-2010
40
2013
30
End-2012
7
5
20
3
10
3M 1Y
2Y
3Y
4Y
5Y
7Y
Source: BoM, Standard Chartered Research
10Y
12Y
20Y
2013
Source: BoM
205
2015
2017
2019
2021
2023
2025
2027
2029
Sub-Saharan Africa
0
1
Local Markets Compendium 2014
Mozambique
Victor Lopes
General
Monetary policy framework
Monetary policy tools
Name
Policy target
Independence
Policy rate
Bloomberg ticker
Deciding body
Bank of Mozambique
Price stability
Yes
Standing Lending Facility
Standing facilities
The Bank of Mozambique targets money supply growth. It
signals its monetary policy stance by setting the interest rates
on its standing lending and deposit facilities. Currently, these
rates are 9% and 1.75%, respectively
Monetary Policy Committee (CPMOacronym in Portuguese)
Reserves requirement
The reserve requirement ratio is currently set at 8%
Policy decision-making
Decision meeting
frequency
Announcement time
Press conference
Minutes published
Open-market
operations (OMOs)
Quarterly inflation
Report
OMOs
The Bank of Mozambique intervenes to manage liquidity
through T-bills auctions and repo and reverse repo operations.
The BoM can also complement liquidity management
operations through intervention in the Interbank Foreign
Exchange Market (MCI).
Monthly
NA
Yes
NA
Yes
Yes
Source: Bank of Mozambique
Source: Bank of Mozambique
Sub-Saharan Africa
Exchange rate framework
Exchange rate regime
Floating
Exchange rate target
No target, but the Bank of Mozambique regularly intervenes in the market to smooth volatility
Intervention instruments
NA
Convertible?
yes
Deliverable?
yes
Fixing time
Spot date, fixing
NA
Fixing methodology
NA
T+2
Source: Bank of Mozambique
Economic and financial indicators
Real GDP, change
CPI inflation*
Current account/GDP
FX res./imports**
Fiscal balance/GDP
Primary balance/GDP
Gen. govt. debt/GDP
External debt/GDP
Policy rate***
S&P
Country
Moody’s
rating
Fitch
2011
7.3
10.4
-25.8
3.3
-4.3
-2.9
45.1
32.6
15.00
B+
NR
B
*Yearly average; **months of imports; ***year-end;
Source: Standard Chartered Research
Government balances (% of GDP)
2012
7.5
2.1
-26.1
3.5
-3.0
-1.0
46.6
36.3
10.50
B+
NR
B
2013F
8.4
5.4
-25.4
2.8
-4.7
-2.7
47.0
41.7
9.00
0
2014F
8.0
5.6
-40.6
2.9
-6.6
-1.7
47.6
44.7
10.00
90
80
-1
70
-2
60
-3
-4
50
General govt.
debt (RHS)
40
30
-5
Fiscal balance
-6
10
0
-7
2004 2005 2006 2007 2008 2009 2010 2011 2012F 2013F 2014F
Source: Standard Chartered Research
206
20
Local Markets Compendium 2014
Mozambique
FX
Exchange rate products
Spot
LHS only
Availability
Daily trading volume
(USD mn)
Average trade size
(USD mn)
Bid/ask spread in MZN
onshore
Bid/ask spread in MZN
offshore
Standard Chartered
Reuters ticker
Outright forwards
NDFs
Options
FX swaps
NA
NA
*Versus USD; for FX swaps, bid/ask spread refers to swap points vs. USD; Source: Standard Chartered Research
Exchange rate regulation – Non-residents
Spot
Mozambique replaced
prior approval with
registration for current
payments.
Capital account
operations require
Bank of Mozambique
approval
NA
Underlying asset – Trade and FDI
Underlying asset – Financial asset
No underlying asset
Forwards
NDFs
Options
FX swaps
NA
Source: Standard Chartered Research
Mozambique replaced prior approval with registration for current payments.
Source: Standard Chartered Research
C/A deficit increasing over time (USD bn per quarter)
C/A
8
FDI
Portfolio flows
Other
6
BoP
4
2
0
-2
-4
-6
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Source: Standard Chartered Research
207
Sub-Saharan Africa
Exchange rate regulation – Residents
Local Markets Compendium 2014
Mozambique
Rates
Bonds
T-bills
Issuer
Use of proceeds
Curve span
Common tenors
Coupon
Coupon frequency
Day count
Primary market
Auction day
Auction cut-off
Auction results
Auction style
Average issue size
Secondary market
Average trade size
Daily trading volume
Quotation convention
Settlement period
Bid/offer spread
Regulations
Custodian
T-Bonds
Republic of Mozambique
Government financing and liquidity management
Government financing
90-364 days
3Y-10Y
90, 180 and 364 days
3Y-5Y
NA
NA
NA
Local custodian
Source: Standard Chartered Research
Domestic debt has been rising (MZN bn)
Sub-Saharan Africa
8
7
6
5
4
3
2
1
0
Jan-10
Jan-11
Jan-12
Source: IMF
208
Local Markets Compendium 2014
Mozambique
Rates
Regulations and taxation
Tax types
Additional notes
Foreign investment regulations Exchange controls exist
Income tax for non-residents
20% withholding tax
Capital gains tax
20% withholding tax
Source: Standard Chartered Research
Market participants
There are 20 financial institutions in Mozambique. The presence of offshore investors is low as they can participate only in some
specific bond issuance, not the T-bills.
Source: Standard Chartered Research
Yield curve over time
13
End-2011
11
9
2013
7
5
3
End-2012
1
3M
6M
1Y
Commercial banks – Slowdown in asset growth
Commercial banks – LDR starts to pick up?
180
40
90
160
35
80
140
30
70
120
80
40
y/y growth
(%, RHS)
20
0
2008
40
15
60
2010
Source: Standard Chartered Research
2011
2012
Government
bonds % of
assets
30
10
20
5
10
0
2009
15
50
20
Assets
(MZN bn)
20
60
25
100
25
LDR (%, LHS)
0
Q4-07
2013
5
0
Q4-08
Q4-09
Source: Standard Chartered Research
209
10
Q4-10
Q4-11
Q4-12
Sub-Saharan Africa
Source: Standard Chartered Research
Local Markets Compendium 2014
Nigeria
Delphine Arrighi
General
Monetary policy framework
Monetary policy tools
Name
Policy target
Independence
Policy rate
Bloomberg ticker
Deciding body
Policy decision-making
Decision meeting
frequency
Announcement time
Press conference
Minutes published
Open-market
operations (OMOs)
Quarterly inflation
report
Monetary Policy Rate (MPR)
The MPR serves as an indicative rate for transactions in the
interbank money market, and for other interest rates in moneymarket transactions. It is currently set at 12%, with a
symmetric interest rate corridor of +/-200bps.
Central Bank of Nigeria (CBN)
Single-digit headline CPI inflation
Medium
Monetary Policy Rate (MPR)
NGCBRATE index
12-member committee
One man, one vote
Every 2 months
NA
Day of the MPC meeting
MPC communiqué
Very actively used to manage liquidity
Monthly and quarterly economic
reports, MPC communiqué every
2 months starting Jan
Open-market operations (OMOs)
OMO instruments include government securities of 91, 182
and 364 days issued by the central bank. The central bank
can issue or sell these instruments on an outright basis or
under repurchase agreements to mop up excess liquidity.
Cash reserve requirement (CRR)
x 12% of banks’ total deposit liabilities (i.e. demand, savings
and time deposits of both private and public entities),
certificates of deposit, promissory notes held by the non-bank
public sector, and other deposit items. In July 2013, the CBN
raised the CRR to 50% on public-sector deposits only.
x Maintenance period is 4-5 weeks.
Source: CBN
Sub-Saharan Africa
Discount window
The central bank implements its discount window policy by
either changing the discount rate or providing credit to banks.
Changes in the discount rate signal the bank’s policy stance.
Discount window operations include CBN standing facilities,
repo and reverse repos, and the cash reserve requirement.
Source: CBN, Standard Chartered Research
Exchange rate framework
Exchange rate regime
Exchange rate target
Intervention instruments
Convertible?
Deliverable?
Fixing time and place
Spot date, fixing
Fixing methodology
Other managed arrangement (IMF)
CBN currently targets USD-NGN at 155 +/- 3%
Bi-weekly WDAS auctions were suspended and replaced with retail DAS auctions effective from
2 October 2013. FX is sold to authorised dealers strictly for client transactions.
Partially
Yes
06:40, Abuja
T+2, NIFEX01
Based on average of 8 reference banks. The average of the quotes (bid and offer) is then
calculated to derive the spot fixing.
Source: CBN
Economic and financial indicators
Government balances (% of GDP)
2011
2012
2013F
2014F
7.2
6.6
6.6
7.4
CPI inflation*
10.9
12.1
8.8
10.7
Current account/GDP
12.2
4.7
4.0
3.6
Real GDP, change
FX res./imports**
Fiscal balance/GDP
4.5
5.1
5.9
0.71
0.92
0.43
-0.61
2.147
2.534
2.077
0.853
Gen. govt. debt/GDP
17.20
17.76
17.85
18.10
2.7
2.5
2.5
2.8
12.00
13.50
External debt/GDP
Policy rate***
Country
rating
12.00
12.00
S&P
B+
B+
Moody’s
NR
NR
Fitch
BB
BB
*Yearly average; **months of imports; ***year-end;
Source: IMF
60
10
50
Fiscal balance
6.2
Primary balance/GDP
15
5
40
0
30
20
-5
General govt.
debt (RHS)
-10
-15
0
2004 2005 2006 2007 2008 2009 2010 2011 2012F 2013F 2014F
Source: IMF, Standard Chartered Research
210
10
Local Markets Compendium 2014
Nigeria
FX
Exchange rate products
Spot
Availability
Daily trading volume
(USD mn)
Average trade size
(USD mn)
Bid/ask spread in NGN
onshore*
Bid/ask spread in NGN
offshore*
Reuters ticker
Outright forwards
Yes
NDFs
Yes
400
20
15
0.5
Case by case
5
0.1
NA
NA
NA
Options
FX swaps
Yes
10
No – Awaiting CBN
approval process
and prudential
guidelines on FX
options
Case by case
NA
0.5
NA
SCNL
SCNL
*Versus USD; for FX swaps, bid/ask spread refers to swap points vs. USD; Source: Standard Chartered Research
Exchange rate regulation – Non-residents
Spot
Underlying asset – Trade and FDI
Underlying asset – Financial asset
No underlying asset
Forwards
RHS requires documentation
NDFs
Options
FX swaps
No restrictions
NA
RHS requires
documentation
LHS only
Applications for private capital transfers abroad are processed by banks with documentation/evidence of exposure.
Foreign investors need to obtain a Certificate of Capital Importation (CCI) from the CBN to repatriate capital proceeds and income on the investment.
http://www.cenbank.org/out/2011/circulars/fmd/guidelines%20for%20foreign%20exchange%20derivatives%20in%20the%20nigerian%20financial%20markets.pdf,
http://www.cenbank.org/out/2011/circulars/ted/ted.fem.fpc.gen.01.009.pdf
Exchange rate regulation – Residents
Market participants
Corporates
Real-money
funds
Hedge funds
Interbank
35% x Exporters (mainly oil and energy companies) with USD receivables typically sell USD at month-end to
fund NGN obligations, usually prompting NGN appreciation.
x Importers of end-user products; telecommunication companies make periodic dividend remittances to
their parent companies, which tends to push USD-NGN higher. They also inflow USD for
investment/upgrading purposes.
25% x Mainly offshore investors; need to sell foreign currency owing to onshore regulation on accessing NGN for
investment in Nigerian equities, money-market and fixed income products. They buy foreign currency
upon repatriation.
5% x Need to sell foreign currency owing to onshore regulation on accessing NGN for investment in Nigerian
equities, money-market and fixed income products. They buy foreign currency upon repatriation.
35% x Interbank trading is mainly flow-driven and short-term in nature.
Source: Standard Chartered Research
NGN REER and NEER – Trend REER appreciation
220
C/A surplus is declining (USD bn)
200
40
180
30
160
20
140
Portfolio
Other
0
100
-10
80
BoP
-20
60
Source: BIS
FDI
10
120
40
1999
C/A
50
REER
NEER
2001
2003
2005
2007
2009
-30
2007
2011
Source: IMF
211
2008
2009
2010
2011
2012
2013
Sub-Saharan Africa
x Authorised dealers can only import foreign banknotes with the prior approval of the CBN, and must state the amount that they
require and its purpose to the CBN.
x Authorised dealers can continue to sell FX to BDCs, subject to a limit of USD 250,000 per week per BDC.
x BDCs have to submit weekly returns to the CBN on the utilisation of funds purchased from all sources.
x Receipt of proceeds from inward money transfers will now be paid only in NGN.
x The applicable FX rate will be the interbank rate on the day of the payment. Authorised dealers have to make these rates
public in a transparent manner (in banking halls, etc).
Local Markets Compendium 2014
Nigeria
Rates
Bonds
T-bills
Issuer
Use of proceeds
Curve span
Common tenors
Coupon
Coupon frequency
Day count
Primary market
Auction day
Auction cut-off
Auction results
FGN bonds
Federal government
Liquidity management
Fiscal financing
2Y-20Y
3Y, 5Y, 7Y, 10Y, 20Y
Fixed
Semi-annual
91D-1Y
Issued at discount
NA
Act/Act
Wednesday
11:00
Wednesday
NGN 60-130bn per tranche
17:00-18:00
Single-price auction – An auction in which the
lowest price necessary to sell the entire offering
becomes the price at which all securities offered
are sold
NGN 50-90bn per tranche
NGN 250mn
NGN 44bn
Discount (two decimal places)
NGN 100mn
NGN 37bn
Price (two decimal places)
Auction style
Multiple-price
Average issue size
Secondary market
Average trade size
Daily trading volume
Quotation convention
Settlement period
T+2
Bid/offer spread
15 kobo (8-12bps) for 3Y and below, 30 kobo
(3-6bps) for tenors over 3Y
25bps
Regulations
Custodian
Local custodian
Sub-Saharan Africa
Source: Bloomberg, Standard Chartered Research
Steady rise of the government bond market
Quarterly FGN bond turnover ratio – Rising
7
45
40
35
30
25
20
15
10
5
0
6
5
4
USD bn (RHS)
3
2
NGN tn (LHS)
1
0
2005
2006
2007
2008
2009
2010
2011
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
2005
2012
2006
2007
2008
2009
Source: DMO
Source: DMO
Swaps
Floating-rate reference calculation
Cross-currency swap/interest
rate swap
Average daily market volume NA
Average ticket size
NA - Bilateral trades
Average bid/offer spread
150bps
Term
1-5Y
Liquid up to
NA
Settlement
T+2
Coupon frequency
Quarterly/semi-annually
Convention
Act/360 - Act/365
Floating-rate reference
As applicable
Floating-rate ticker
As applicable
Ticker (2Y)
NNSWL2/NNSW2
For CCS: 3M US LIBOR
Main product
Source: Bloomberg, Reuters, Standard Chartered Research
2010
2011
2012
For IRS: Nigeria Interbank Treasury Bills 3M: processed and
published by the Money Market Association of Nigeria. This is
a fixing processed from marked-to-market T-bill bid discounts.
The discounts are converted to money-market equivalent as
true yields with interpolation and extrapolation for standardtenor benchmarks. NITTY published on T+1 represents MTM
of T, which is for value T+1. This allows for the
synchronisation of settlement dates for the repricing of assets
and liabilities of floating instruments, and for the settlement of
derivatives.
Source: Bloomberg
212
Local Markets Compendium 2014
Nigeria
Rates
Account opening
Cash account
Local bank
Special requirements
None
Depository account
Local custodian
Trading account
Yes
Process duration
Approximately 2-5 days
Trade and settlement flowchart
Local custodian
5. Settlement Instruction
6. Money Wire and FX & Transfer Instruction
7. Match settlement
instruction
Omnibus/Investor’s
sub-account
Local Bank
FX conversion
1. Order placement
Foreign
Investor
Counterparty
Investor
FCY A/C
4. Confirmation
Investor
NGN A/C
Settlement and clearing
2. Execution
CSCS
Bond A/C
Investor
8. DVP Settlement
(T+2)
Settlement bank - NIBSS
NSE: Nigerian Stock Exchange
CSCS: Central Securities Clearing
System, Limited
NIBSS: Nigerian InterBank
Settlement System
Cash A/C
Investor
Counterparty
Source: Standard Chartered Research
Regulations and taxation
Tax types
Additional notes
Foreign investment regulations Not restricted
One-year minimum holding period for foreign investors in
government securities was lifted in June 2011. Foreign investors still
need a Certificate of Capital Importation (CCI) to repatriate funds.
Income tax for non-residents
None
Capital gains tax
None
Source: CBN, Standard Chartered Research
213
Sub-Saharan Africa
3. Trading report
NSE
Counterparty
Local Markets Compendium 2014
Nigeria
Rates
Market participants
Primary Dealers
x Currently 25 Primary Dealers (PDMMs), reportedly accounting for 80% of total bond-market transactions.
x PDMMs are typically active in secondary trading since they hold a separate trading account.
x Regulated by the CBN (http://www.cenbank.org/)
Domestic banks/discount houses
x 25 entities; biggest holders of government bonds, accounting for more than 60% of the total outstanding.
x Discount houses are defined as dealers in T-bills, commercial bills and other securities.
x Very active in secondary trading; typically invest across the curve.
x Banks are more involved in T-bills; their bonds have been moved to the held-to-maturity account. Greater bond appetite from
offshore investors has meant local banks have stayed largely invested in T-bills.
x Regulated by CBN (http://www.cenbank.org/)
Insurance companies and pension funds
x Second-biggest holders of government bonds; account for around 17% of secondary trading
x 17 pension fund administrators
x Became more active in secondary market in 2012
x Prefer longer tenors to match their liabilities
x Regulated by the National Pension Commission (http://www.pencom.gov.ng/) under the 2004 Pension Reform Act and the
National Insurance Commission (www.naicom.gov.ng/)
Sub-Saharan Africa
Foreign investors
x Foreign investors open a book-entry account and fund account with a clearing bank.
x They were active in the local government bond and commercial paper markets from 2006-08, and have become more active
again since Nigeria’s inclusion in the GBI-EM indices in September 2012.
x Can invest across the curve; their holdings are typically concentrated in T-bills and indexed bonds (2015, 2017, 2019 and
2022).
Source: CBN, Pencom, Naicom
Bonds and bills ownership by participant (NGN tn)
5
Ownership by participant (%)
80
70
60
50
40
30
20
10
0
Dec-09
Banks
4
3
2
Foreigners
Pension
1
0
Dec-09
CBN
Jun-10
Dec-10
Jun-11
Dec-11
Jun-12
Dec-12
Banks
Pension
CBN
Jun-10
Dec-10
Jun-11
Dec-11
Jun-12
Dec-12
Source: DMO, Standard Chartered Research
Source: DMO, Standard Chartered Research
Yield curve over time (%)
Debt profile – Government securities (NGN tn)
20
Foreigners
5
4
End-2011
15
2013
3
End-2012
2
End-2010
10
1
End-2009
0
5
O/N 1Y 2Y 3Y 4Y 5Y
7Y
10Y
Source: Reuters, Standard Chartered Research
20Y
2013
2015
2017
2019
2021
Source: Bloomberg, Standard Chartered Research
214
2023
2025
2027
2029
Local Markets Compendium 2014
Nigeria
Rates
Commercial banks – Steady growth in assets
25
Commercial banks – LDR is trending higher
Assets
(NGN bn)
20
90
60
80
17
70
15
60
13
50
LDR (%, LHS)
40
15
30
y/y growth
(%, RHS)
10
5
0
2000
19
70
2002
2004
2006
2008
2010
20
50
10
40
0
30
-10
20
Q4-00
2012
11
Government
bonds % of
assets
9
7
5
Q4-02
Q4-04
Q4-06
Q4-08
Q4-10
Q4-12
Source: CBN
Source: CBN, Standard Chartered Research
Insurance sector – Slowdown in growth rate (NGN bn)
Cross-sectional comparison of insurance density (2012)
250
Insurance density (USD)
10K
200
150
100
TT
AO
UY
KE
10
SG
BH
OM
LT
100
USHK NO
AE
PT
ZA
1K
SV
NG
50
0
2001
CH
MT
1
2002
2003
2004
2005
2006
2007
2008
2009
0
2010
5
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
50
55
60
Source: Swiss Re, IMF, Standard Chartered Research
Pension funds – Growing ownership of bonds
Cross-sectional comparison of pension funds (2012)
70
3.0
60
2.5
2.0
50
Govt. bonds
as % of assets
(RHS)
40
1.5
30
1.0
20
Assets
(NGN tn)
0.5
100K
Pension fund/capita (USD)
3.5
CH
IL
10K
NA ZA
1K
KE
100
LK
NG
TH
BG
HK
JP
FR
SG
NO
AT
HU
DE
MT
GH
UG
US
Sub-Saharan Africa
Source: Swiss Re
65
CS
10
GR
UA
10
1
0.0
2006
Source: Pencom
0
2007
2008
2009
2010
2011
0
2012
5
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
Source: OECD, FIAP, Swiss Re, IMF, local sources including
pension fund associations, Ministry of Finance, central banks
215
50
55
60
65
Local Markets Compendium 2014
South Africa
Michael Trounce
General
Monetary policy framework
Monetary policy tools
Name
Policy target
Repo rate
Weekly 7-day repurchase auction, which is conducted with
commercial banks at the repo (policy) rate as determined by
the MPC. The SARB lends funds to banks against eligible
collateral, which comprises assets that also qualify as liquid
assets under the prudential liquid asset requirement.
South African Reserve Bank (SARB)
Flexible 3-6% target band for CPI
inflation
Independence
High
Policy rate
Repo rate
Bloomberg ticker
SARPRT index
Deciding body
Monetary Policy Committee (8 SARB
officials)
Policy decision-making One person, one vote
Decision meeting
Every two months (6 meetings)
frequency
Announcement time
10:00-12:00 Cape Town time
Press conference
15:00
Minutes published
Press statement released after MPC
meeting
Open-market
To ensure policy rate maintained,
operations (OMOs)
manage liquidity
Quarterly inflation
3rd week of Dec, Mar, Jun, Sep
report
Source: SARB, Standard Chartered Research
OMOs
OMO instruments include issuance of SARB debentures,
reverse repos, the movement of public-sector funds between
the market and the SARB, and money-market swaps in the
foreign exchange market.
Cash reserve requirement (CRR)
x 2.5% of a bank’s total deposit liabilities
x Financial institutions are also required to hold 5% of their
total liabilities in liquid assets such as T-bills, government
bonds, SARB debentures and Land Bank bills.
Source: SARB, Standard Chartered Research
Sub-Saharan Africa
Exchange rate framework
Exchange rate regime
Floating (IMF)
Exchange rate target
No target, but ad-hoc FX intervention to curb ZAR strength and ensure ZAR NEER reflects
fundamentals
Intervention instruments
Through spot USD-ZAR and sell/buy FX swaps both onshore and offshore
Convertible?
Yes
Deliverable?
Yes
Fixing time and place
Spot date, fixing
16:00, London
Fixing methodology
Average of dealing prices for every second between 30 seconds before and 30 after the hour
T+2, WMR fix
Source: IMF, SARB, Standard Chartered Research
Economic and financial indicators
Government balances (% of GDP)
2011
2012
2013F
2014F
2
Real GDP, change
3.5
2.5
2.2
3.1
1
CPI inflation*
5.0
5.8
5.8
5.0
-3.4
-6.3
-6.2
-6.3
0
4.9
4.8
4.7
4.7
-1
-5.52
-3.9
-4.8
-4.8
Current account/GDP
FX res./imports**
Fiscal balance/GDP
Primary balance/GDP
-1.2
-1.8
-1.8
-1.2
39.60
42.30
42.70
43.60
External debt/GDP
27.3
32
33.8
34
Policy rate***
5.50
5.50
5.00
5.00
Gen. govt. debt/GDP
S&P
Country
rating
Moody’s
Fitch
A
A
A3
BAA1
A
A
*Yearly average; **months of imports; ***year-end;
Source: SARB, IMF, Standard Chartered Research
General govt.
debt (RHS)
45
40
35
30
25
-2
20
-3
15
-4
10
Fiscal balance
-5
0
-6
2004 2005 2006 2007 2008 2009 2010 2011 2012F 2013F 2014F
Source: SARB, MoF, Standard Chartered Research
216
5
Local Markets Compendium 2014
South Africa
FX
Exchange rate products
Spot
Availability
Daily trading volume
(USD bn)
Average trade size
(USD mn)
Bid/ask spread in ZAR
onshore*
Bid/ask spread in ZAR
offshore*
Reuters ticker
Outright forwards
Yes
19
7
1.5
5
NDFs
Options
FX swaps
Yes
2
31
20
100
NA
0.004
1M 0.003
0.75 vol
1M 0.0025
EXOT
NA
SCOL
SCEX
*Versus USD; for FX swaps, bid/ask spread refers to swap points vs. USD; Source: BIS, Triennial Central Bank Survey, April 2013, Standard Chartered Research
Exchange rate regulation – Non-residents
Spot
Forwards
Underlying asset – Trade and FDI
Underlying asset – Financial asset
No underlying asset
NDFs
Options
FX swaps
Documentation may be required
No restrictions
No restrictions
Non-residents are permitted to hold foreign-currency accounts.
There are no restrictions on profit, interest, dividend and branch profit repatriation. However, director’s fees, management fees and royalties require SARB approval.
http://www.resbank.co.za/RegulationAndSupervision/FinancialSurveillanceAndExchangeControl/Legislation/Documents/Exchange%20Control%20Regulations.pdf
http://www.resbank.co.za/RegulationAndSupervision/FinancialSurveillanceAndExchangeControl/EXCMan/Section%20O/Section%20O.pdf
http://www.resbank.co.za/RegulationAndSupervision/FinancialSurveillanceAndExchangeControl/EXCMan/Section%20V/Section%20V.pdf
Exchange rate regulation – Residents
Source: SARB
Market participants
Corporates
Real-money
funds
Hedge funds
Interbank
50% x Exporters with USD receivables typically sell USD-ZAR forwards given trend ZAR appreciation.
x Importers rarely enter into USD-ZAR forward contracts owing to ZAR trend appreciation.
15% x Real-money funds constitute a large part of the ZAR FX market given South Africa’s open capital
account.
x Real-money funds typically leave their ZAR exposure unhedged owing to ZAR trend appreciation.
35% x Hedge funds are heavily involved in ZAR.
0% x Interbank trading is mainly flow-driven and short-term in nature.
Source: Standard Chartered Research
ZAR REER and NEER – The ZAR is consolidating
Structural C/A deficit persists (ZAR bn)
80
110
FDI
Portfolio
0
Other
60
100
-2
40
90
20
80
REER
70
-40
50
-60
Source: BIS
-6
-20
60
40
1994
-4
0
1997
2000
2003
2006
2009
2012
C/A (%, RHS)
-8
-80
NEER
-10
2007
Source: IMF
217
2008
2009
2010
2011
2012
Sub-Saharan Africa
x Capital account restrictions exist for residents, including restrictions on currency speculation. Capital transfers are subject to
SARB approval.
x Exchange control restrictions on outward FDI of under ZAR 500mn by South African companies have been eased, although
an application still needs to be made to the SARB for monitoring purposes. Qualifying international headquarter companies
are allowed to raise and deploy capital offshore without exchange control approval (since 1 January 2011).
x The exchange control limit for individuals is ZAR 4mn a year, versus a previous lifetime amount of ZAR 4mn.
Local Markets Compendium 2014
South Africa
Rates
Bonds
T-bills
Issuer
Use of proceeds
Curve span
Common tenors
Coupon
Coupon frequency
Day count
Primary market
Auction day
Auction cut-off
Auction results
Auction style
Average issue size
Secondary market
Average trade size
Daily trading volume
Quotation convention
Settlement period
Bid/offer spread
Regulations
Custodian
SAGBs
National Treasury
Liquidity management
Inflation Linked Bonds
Fiscal financing
1Y-30Y
2Y, 5Y, 10Y
91- to 364-day
7Y-30Y
Zero
NA
Fixed
Semi-annual
Act/365
Friday
10:00
12:00
Multiple-price (2 decimals
ZAR 5-7bn (across all tenors)
Tuesday
Friday
11:00
11:30
11:00
Multiple-price (3 decimals)
ZAR 800-1,100mn
ZAR 600mn
NA
Yield (two decimals)
T+3
2-4bps
3-5bps
Local custodian or Euroclear
Source: Bloomberg, Standard Chartered Research
Sub-Saharan Africa
Steady rise of the government bond market
Quarterly trading turnover – Trending higher
1.2
140
6
1.0
120
5
100
0.8
USD bn (RHS)
4
80
3
0.6
60
0.4
0.2
0.0
2001
2003
2005
2
40
ZAR tn (LHS)
2007
2009
2011
20
1
0
0
2001
2013
Source: SARB
Swaps
Main product
Average daily market volume
Average ticket size
Average bid/offer spread
Term
Liquid up to
Settlement
Coupon frequency
Convention
Floating-rate reference
Floating-rate ticker
Ticker (2Y)
2003
2005
2007
2009
2011
2013
Source: SARB, JSE
Floating-rate reference calculation
Interest rate swaps
ZAR 6bn
ZAR 200mn
3-5bps
1-30Y
1-10Y
T+0
Quarterly
Act/365
3M JIBAR
JIBA3M (Bloomberg)
SASW2 Curncy (Bloomberg)
Source: Bloomberg, Reuters, Standard Chartered Research
JIBAR: Johannesburg Interbank Agreed Rate
Average of the rates indicated by local and international
banks. JIBAR is calculated as a yield and then converted into
a discount. The rate is calculated daily after all of the rates are
received by participating banks.
Source: Bloomberg
218
Local Markets Compendium 2014
South Africa
Rates
Account opening
Cash account
Euroclear or local custodian
Special requirements
None
Depository account
Euroclear or local custodian
Trading account
Yes
Process duration
Approximately 2-5 days
Trade and settlement flowchart
Foreign
Investor
Strate: the authorised Central Securities
Depository (CSD) for the electronic settlement
SARB: South African Reserve Bank
BESA: previously known as the Bond
Exchange of South Africa
1. Transaction execution
Counterparty
3.
4. Settlement Instruction
2. Order match
5. Money Wire (USD)
Global
Custodian
BESA
6. Trading report
Local
Custodian
8. Debit/Credit Request
Strate
Investor
Safe Keeping
A/C
SARB
ZAR
Investor
10. DVP
Settlement
(T+3)
AD
Investor
AD
Linked
Linked
Source: Standard Chartered Research
Regulations and taxation
Tax types
Additional notes
Foreign investment regulations Not restricted
Capital controls for residents (institutions’ overseas investments are
restricted to 20% of retail assets for retirement funds and long-term
issuers).
Income tax for non-residents
Exempt
Capital gains tax
Companies and trusts
50%, individuals 25%
This portion of the net gain will be taxed at the marginal tax rate.
This means a maximum effective rate of 10% is payable; for
corporate taxpayers, the maximum is 15%.
Source: Bloomberg, Reuters, Standard Chartered Research
219
Sub-Saharan Africa
Bond A/C
6. ZAR Conversion
Investor
ZAR A/C
9. Debit/Credit Confirmation
7. Trade dispute/Settlement Order
Local Markets Compendium 2014
South Africa
Rates
Market participants
Banks
x Banks have to retain 5% of their total deposits in liquid assets.
x For reserve requirement purposes, banks tend to buy bonds of <5Y.
x Trading books tends to target liquid on-the-run issues.
x Regulated by SARB (http://www.resbank.co.za/pages/default.aspx/)
Pension funds
x The pension fund industry is the largest holder of SAGBs, ahead of banks.
x The Public Investment Corporation (PIC) manages funds on behalf of many public-sector pension funds, including the
Government Employee Pension Fund (GEPF), which accounts for 90% of their assets.
x They typically prefer longer tenors to match their liabilities; their holdings of government securities account for 19% of their
assets.
x Regulated by the Financial Services Board (http://www.fsb.co.za)
Insurance companies
x Insurance companies have traditionally been a large investor in SAGBs, although their holdings of government debt as a % of
the total outstanding have decreased from an average of 30% to a low of 14% in 2013.
x Around 8% of their assets are invested in government securities.
x Insurance companies are traditionally split between ‘short-term insurers’ and ‘long-term insurers’.
x Regulated by the Financial Services Board (http://www.fsb.co.za)
Sub-Saharan Africa
Unit trusts
x Government holdings as a share of their portfolios have rebounded from their 2008 lows, and are now at around 12% of their
total assets.
x Mutual funds are very active across the curve.
x Regulated by the Financial Services Board (http://www.fsb.co.za)
Foreign investors
x There are no restrictions on foreign investors.
x Active participants in the SAGB market; target liquid on-the-run issues.
x Typically active across the curve, both in cash bonds and swaps.
x Their share of holdings has increased to a record high in 2012, boosted by South Africa’s inclusion in the Citi WGB Index.
Source: Standard Chartered Research
Ownership by participant (ZAR bn)
400
350
300
250
200
150
100
50
0
2007
Ownership by participant (%)
Foreigners
70
60
50
Pension funds
Pension funds
40
Foreigners
30
Banks
Banks
20
All Others
2008
2009
10
Insurers
2010
2011
All Others
0
2007
2012
2008
2009
2010
Insurers
2011
2012
Source: ZARB, Standard Chartered Research
Source: SARB, Standard Chartered Research
Yield curve over time (%)
Debt profile – Government securities (ZAR bn)
10
End-2009
120
2013
End-2011
9
100
8
80
End-2010
7
6
60
40
End-2012
5
20
4
0
1Y2Y3Y4Y5Y6Y7Y8Y9Y10Y
15Y
Source: Bloomberg, Standard Chartered Research
20Y
25Y
30Y
2014
2019
2024
2029
2034
Source: Bloomberg, Standard Chartered Research
220
2039
2044
2049
Local Markets Compendium 2014
South Africa
Rates
Commercial banks – Asset growth is recovering
4.0
Commercial banks – LDR is rebounding
3.5
30
105
20
2.5
2.0
1.5
y/y growth
(%, RHS)
1.0
104
4.5
10
103
4.0
5
102
2008
2009
2010
2011
2012
2013
Source: SARB, Standard Chartered Research
Assets
(ZAR tn)
14
12
10
1.5
Bonds % of
assets (RHS)
1.0
8
6
4
0.5
2
Q4-07
Q4-09
2005
2007
2009
CH
MT
Q4-11
TT
AO
UY
KE
10
SG
BH
OM
LT
100
USHK NO
AE
PT
ZA
1K
SV
NG
1
0
2003
Q4-05
10K
Insurance density (USD)
2.0
2001
Q4-03
Cross-sectional comparison of insurance density (2012)
16
2.5
1999
3.0
Q4-01
Source: SARB, Standard Chartered Research
Demand for bonds from the insurance sector is declining
0.0
1997
LDR (%, LHS)
100
Q4-99
-10
2007
3.5
101
-5
2006
5.0
15
0
0.5
5.5
Government
bonds % of
assets
106
25
3.0
0.0
2005
107
35
Assets
(ZAR tn)
0
5
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
2011
50
55
60
Source: Swiss Re, IMF, Standard Chartered Research
Mutual funds – Steady growth in AUM (ZAR tn)
Cross-sectional comparison of mutual funds (2012)
2.5
Equities
Balanced/mixed
Fixed income
Money market
Others
1M
Mutual fund/capita (USD)
IE
2.0
1.5
1.0
0.5
0.0
2005
100K
AU
MA
2008
2009
2010
2011
DE
100
AE
LT
BG
RU
10
PA
VN JO
0
2007
NO
MY
ZA
1K
SG
HK
CH US
10K
1
2006
5
BW
10
15
2012
20 25 30 35 40 45
GDP PPP/capita (USD '000)
50
55
60
Source: ICI
Source: ICI, Swiss Re, IMF, Ministry of Finance, central banks
Pension funds – Declining ownership of government
bonds (ZAR tn)
Cross-sectional comparison of pension funds (2012)
Bond % of
assets (RHS)
100K
35
Pension fund/capita (USD)
2.5
30
2.0
25
1.5
20
Non-PIC
Official
1.0
Private
pension
15
10
0.5
2002
2004
2006
Source: SARB, Standard Chartered Research
CH
IL
10K
NA ZA
1K
NG LK
100KE
TH
BG
HK
JP
FR
SG
NO
AT
HU
DE
MT
GH
UG
US
65
CS
10
GR
UA
5
PIC
0.0
2000
Sub-Saharan Africa
Source: SARB Standard Chartered Research
65
1
2008
2010
0
2012
0
5
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
Source: OECD, FIAP, Swiss Re, IMF, local sources including
pension fund associations, Ministry of Finance, central banks
221
50
55
60
65
Local Markets Compendium 2014
Tanzania
Delphine Arrighi
General
Monetary policy framework
Monetary policy tools
Name
Policy target
Reserve requirements
Reserve requirement is the percentage of commercial banks’
total deposit liabilities and short- to medium-term borrowings
that is required to be held as reserves at the BoT. The
reserves are used for both prudential and monetary policy
purposes. The statutory minimum reserve requirement (SMR)
is currently at 10% on central government deposits.
Bank of Tanzania (BoT)
Monetary aggregates target – Longterm CPI inflation average between 05%
Independence
Low
Policy rate
NA
Bloomberg ticker
NA
Deciding body
Monetary Policy Committee (10
members)
Policy decision-making One person, one vote
Decision meeting
NA
frequency
Announcement time
NA
Press conference
NA
Minutes published
Half-year monetary policy statement
Open-market
Active usage to manage liquidity
operations (OMOs)
Quarterly inflation
Monthly and quarterly economic
report
reports
Source: Bank of Tanzania, Standard Chartered Research
OMOs
Repos were introduced in 1997 to complement T-bills and
bonds in conducting OMOs and to manage intra-auction
liquidity volatility. There are currently two tenors for repos, 2and 14-day.
Intraday liquidity facility (ILF)
In 2003, the BoT introduced an intraday liquidity facility (ILF)
and a Lombard standby credit facility to provide overnight
collateralised loans to commercial banks, usually at a penalty
rate to discourage frequent use. Only 91-day T-bills can be
used as collateral.
Source: Bank of Tanzania, Standard Chartered Research
Sub-Saharan Africa
Exchange rate framework
Exchange rate regime
Floating (IMF)
Exchange rate target
No target
Intervention instruments
NA
Convertible?
Yes
Deliverable?
Yes
Fixing time and place
Spot date, fixing
NA
Fixing methodology
NA
T+2
Source: IMF, Standard Chartered Research
Economic and financial indicators
2011
Real GDP, change
CPI inflation*
Current account/GDP
FX res./imports**
Fiscal balance/GDP
Government balances (% of GDP)
2012
2013F
2014F
6.1
6.5
6.8
7.0
11.3
15.6
9.8
7.4
-13.6
-15.8
-14.8
-13.3
3.6
3.7
3.6
3.7
-5.0
-5.8
-5.0
-4.0
Primary balance/GDP
-5.9
-5.1
-4.3
-3.8
Gen. govt. debt/GDP
39.8
41.6
43.3
44.0
External debt/GDP
34.4
35.0
36.8
37.9
13.99
11.90
10.80
9.60
S&P
NA
NA
Moody’s
NA
NA
Fitch
NA
NA
91-day T-bill***
Country
rating
*Yearly average; **months of imports; ***year-end;
Source: IMF, IIF, MoF, Standard Chartered Research
0
70
-1
60
-2
50
-3
40
-4
30
-5
20
Fiscal balance
-6
10
General govt.
debt (RHS)
-7
2004 2005 2006 2007 2008 2009 2010 2011 2012F 2013F 2014F
Source: IMF
222
0
Local Markets Compendium 2014
Tanzania
FX
Exchange rate products
Spot
Availability
Daily trading volume
(USD mn)
Average trade size
(USD mn)
Bid/ask spread in TZS
onshore*
Bid/ask spread in TZS
offshore*
Reuters ticker
Outright forwards
Yes
10-20mn
NDFs
Options
FX swaps
2-5mn
0.25mn
NA
10
NA
*Versus USD; for FX swaps, bid/ask spread refers to swap points vs. USD; Source: Standard Chartered Research
Exchange rate regulation – Non-residents
Spot
Forwards
No restrictions.RHS must be supported by
underlying customer trade
Restricted. Capital
NA
account closed
Underlying asset – Trade and FDI
Underlying asset – Financial asset
No underlying asset
NDFs
Options
FX swaps
Restricted
NA
Authorised
dealers only
Authorised dealers only
http://www.bot-tz.org/BankingSupervision/ForeignExchangeActs1-1992.pdf
Exchange rate regulation – Residents
x Residents can hold foreign-currency accounts with an authorised dealer and sell any amount of foreign currency to an
authorised dealer or bureau de change.
Sub-Saharan Africa
Source: Bank of Tanzania, Standard Chartered Research
Market participants
Corporates
Real-money
funds
Hedge funds
Interbank
80% x Both exporters and importers tend to hedge when the trend is against them.
x Overall hedging activity, however, is low.
0% x NA
0% x NA
20% x Most interbank transactions are need-based; few dealers engage in speculative trading.
Source: Standard Chartered Research
USD-TZS – Trend TZS depreciation
Deteriorating C/A deficit (USD mn)
2,000
140
1,800
REER (RHS)
1,600
120
1,400
100
1,200
80
1,000
800
USD-TZS
(LHS)
Other
BoP
0
-500
-1,000
20
200
Source: BIS
Portfolio
40
400
0
1994
FDI
500
60
600
C/A
1,000
-1,500
0
1997
2000
2003
2006
2009
Sep-11
2012
Source: BoT
223
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Local Markets Compendium 2014
Tanzania
Rates
Bonds
BGTBs
Issuer
Use of proceeds
Curve span
Common tenors
Coupon
Coupon frequency
Day count
Primary market
Auction day
Auction cut-off
Auction results
Auction style
Average issue size
Secondary market
Average trade size
Daily trading volume
Quotation convention
Settlement period
Bid/offer spread
Regulations
Custodian
T-bills
United Republic of Tanzania
Fiscal financing
2Y-10Y
2Y, 5Y,7Y, 10Y
Fixed
Semi-annual
Liquidity management
35- to 364-day
35 days, 3M, 6M, 1Y
Zero
NA
Act/365
Wednesday
11:00
16:00
Multiple-price
TZS 50bn
TZS 135bn
NA
Yield (4 decimal places)
Yield (2 decimal places)
Flexible
50bps
Local custodian
Source: Bank of Tanzania
Sub-Saharan Africa
Government bond market – Steady rise
5
3.0
4
2.5
2.0
USD bn (RHS)
3
1.5
2
1.0
1
0
2001
0.5
TZS tn (LHS)
0.0
2003
2005
2007
2009
2011
Source: Ban of Tanzania
Swaps
Floating-rate reference calculation
Cross-currency swaps/interest
rate swaps
Average daily market volume NA
Average ticket size
NA – bilateral trades
Average bid/offer spread
150bps
Term
1-5Y
Liquid up to
NA
Settlement
T+2
Coupon frequency
quarterly
Convention
Act/365
Floating-rate reference
As applicable
Floating-rate ticker
As applicable
Ticker (2Y)
TPSW2/TPSWL2
For cross-currency swaps, the floating-rate reference is 3M
US LIBOR.
Main product
Source: Bloomberg, Reuters, Standard Chartered Research
For interest rate swaps, the floating rate reference is the 3M or
6M T-bill.
Source: Standard Chartered Research
224
Local Markets Compendium 2014
Tanzania
Rates
Market participants
Commercial banks
x Banking institutions are the most active participants in the bond market, holding approximately 46% of total government
securities outstanding.
x There are currently 25 banks registered in Tanzania. All are registered as PDs, although there is no two-way quote
requirement and participation is not restricted at primary auctions.
x Banks are typically more active in the primary market, trading across the curve, but with a preference for the short end (less
than 2Y). Most of their holdings are in government bonds.
Asset managers and pension funds
x Asset managers and pension funds are the third-largest group of investors in the Tanzanian bond market, holding
approximately 20% of total domestic government debt.
x There are five pension funds in Tanzania (state-owned or partially state-owned), including Unit Trust of Tanzania, the National
Social Security Fund, and the Parastatal Pension Fund.
x Their investment approach is relatively conservative, given that most of their funds originate from pension fund schemes.
Hence, the bulk of their holdings is in government securities.
x They are mostly active in the primary market, pursuing a ‘buy and hold’ strategy, and tend to be on the buy side of the
secondary market. Although pension funds traditionally favour the longer end of the curve, their investment choices are limited
by the tenors available at each monthly T-bond auction.
Insurance companies
x There are more than 10 insurance companies in Tanzania, of which five are active in the local bond market.
x They tend to target the longer tenors in an attempt to match assets and liabilities.
x Like pension funds, insurance companies are mostly active in the primary market due to their ‘buy and hold’ approach
Foreign investors
Holding of government securities is restricted to Tanzanian residents.
Source: Standard Chartered Research
Ownership by participant (%)
Commercial
banks
3.0
2.5
60
Commercial
banks
50
2.0
40
Other banks
1.5
1.0
Other official
enterprises
0.5
BoT
30
Pension
20
NBFI
Individual
Insurance
NBFI
Other official
enterprises
10
0.0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Individual
Pension
Insurance
Other banks
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: Bank of Tanzania
Source: Bank of Tanzania
Yield curve over time (%)
Debt profile – Government securities (TZS bn)
25
3,000
2,500
End-2011
20
2,000
End-2009
2013
15
BoT
1,500
End-2010
End-2012
1,000
10
500
0
5
3M
1Y
2Y
3Y
4Y
Source: Standard Chartered Research
5Y
6Y
7Y
8Y
9Y
10Y
2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033
Source: Bloomberg, Standard Chartered Research
225
Sub-Saharan Africa
Ownership by participant (TZS tn)
Local Markets Compendium 2014
Uganda
Delphine Arrighi
General
Monetary policy framework
Monetary policy tools
Name
Policy target
Central Bank Rate (CBR)
x The BoU sets the CBR as the monetary policy operating
target. It is used to guide 7-day interbank interest rates and
signal the monetary policy stance during the month. In
August 2013, the CBR stood at 11%, with a +/-2% band.
The margin on the rediscount rate is MPR +3%.
Bank of Uganda (BoU)
Core CPI inflation within 5% per
annum
Independence
Medium
Policy rate
Central Bank Rate
Bloomberg ticker
UGCBRATE index
Deciding body
Monetary Policy Committee
Policy decision-making One man, one vote
Decision meeting
Every month
frequency
Announcement time
Morning
Press conference
Morning
Minutes published
Press statement released after MPC
meeting
Open-market
To ensure policy rate maintained,
operations (OMOs)
manage liquidity
Quarterly inflation
Monthly and quarterly economic
report
reports
OMOs
x OMOs use purchases/sales of government securities in the
secondary market for structural liquidity management so
that the amount of liquidity ultimately makes it possible for
market rates to converge towards the BoU policy rate.
Rediscount rate (RR) and bank rate (BR)
x The RR is the rate at which the BoU will discount
government securities offered by the holder, which is set by
the MPC above the CBR by a policy margin. The current RR
and BR are set at 3ppt and 4ppt, respectively, above the
CBR.
Cash reserve requirement (CRR)
Current required ratio: 9.5%
Source: BoU, Standard Chartered Research
Source: BoU, Standard Chartered Research
Sub-Saharan Africa
Exchange rate framework
Exchange rate regime
Floating (IMF)
Exchange rate target
No target; BoU’s involvement in the foreign exchange market is limited to occasional intervention
to dampen excessive exchange rate volatility
Intervention instruments
Through spot USD-UGX
Convertible?
Yes
Deliverable?
Yes
Fixing time and place
Spot date, fixing
06:40, offshore
Fixing methodology
NA
T+2, no official fixing
Source: IMF, BoU, Standard Chartered Research
Economic and financial indicators
Real GDP, change
CPI inflation*
Current account/GDP
FX res./imports**
Fiscal balance/GDP
Government balances (% of GDP)
2011
2012
2013F
2014F
0.0
90
4.4
5.1
5.3
5.0
-0.5
80
18.7
14.6
5.4
8.5
-1.0
70
-11.1
-12.0
-10.4
-12.2
3.4
3.7
4.1
4.1
-7.2
-4.8
-3.3
-4.8
-1.5
-2.3
-3.8
-1.5
-3.2
Gen. govt. debt/GDP
32.2
34.5
37.6
40.6
-3.0
External debt/GDP
17.3
16.3
17.0
20.3
-3.5
23.00
12.00
11.00
12.00
-4.0
S&P
B+
B+
Moody’s
NR
NR
B
B
Country
rating
Fitch
*Yearly average; **months of imports; ***year-end;
Source: BOU, IMF, Standard Chartered Research
50
-2.5
Primary balance/GDP
Policy rate***
60
-2.0
40
30
General govt.
debt (RHS)
Fiscal balance
10
-4.5
0
-5.0
2004 2005 2006 2007 2008 2009 2010 2011 2012F 2013F 2014F
Source: IMF, Standard Chartered Research
226
20
Local Markets Compendium 2014
Uganda
FX
Exchange rate products
Spot
Outright forwards
NDFs
Yes
Options
FX swaps
40
5
NA
On request
50
5
2
NA
1M 10, 2M 15,
3M 20, 6M 50,
1Y 80
OTC
SCAH
Availability
Daily trading volume
(USD mn)
Average trade size
(USD mn)
Bid/ask spread in UGX
onshore*
Bid/ask spread in UGX
offshore*
Reuters ticker
0.5
10
NA
1M 10, 2M 15,
3M 20, 6M 50,
1Y 80
5
25
SCAH
*Versus USD; for FX swaps, bid/ask spread refers to swap points vs. USD; Source: Standard Chartered Research
Exchange rate regulation – Non-residents
Spot
Forwards
NDFs
Underlying asset – Trade and FDI
Underlying asset – Financial asset
No underlying asset
Options
FX swaps
No restrictions
Non-residents are free to open and maintain foreign-currency accounts locally and abroad.
Non-residents are free to open and maintain domestic-currency accounts.
Payments, including import payments to non-residents, may be made in UGX for credit to a non-resident’s account in Uganda or in the currency of the country of
residence of the payee. Other convertible currencies may also be accepted for international payments.
http://www.bou.or.ug/export/sites/default/bou/bou-downloads/acts/supervision_acts_regulations/FX_Acts/FXAct2004.pdf
Exchange rate regulation – Residents
Source: BoU
Market participants
Corporates
Real-money
funds
Hedge funds
Interbank
75% x Some exporters previously sold USD-UGX forwards when the local currency was appreciating.
x Importer buying of USD-UGX forwards has increased owing to the depreciation trend of the past 1.5
years.
1% x Real-money funds constitute a small portion, despite open capital account.
x Some hedge and others do not. Recent volatile environment has discouraged this.
4% x Hedge funds have limited involvement owing to liquidity concerns.
x A reasonable number of investors trade through offshore forwards.
20% x Interbank trading is mainly flow-driven and short-term in nature.
Source: Standard Chartered Research
UGX REER and NEER – UGX is rising
The C/A deficit is stabilising (USD mn)
160
REER
140
2,000
120
1,000
100
0
80
Source: BIS
FDI
Portfolio
Other
BoP
-1,000
NEER
60
40
1995
C/A
3,000
-2,000
-3,000
1998
2001
2004
2007
2010
2013
2006
Source: IMF
227
2007
2008
2009
2010
2011
2012
2013
Sub-Saharan Africa
x Residents are free to open and maintain foreign-currency accounts locally and abroad.
x Residents and non-residents are free to open and maintain domestic-currency accounts.
Local Markets Compendium 2014
Uganda
Rates
Bonds
T-bills
Issuer
Use of proceeds
Curve span
Common tenors
Coupon
Coupon frequency
Day count
Primary market
Auction day
Auction cut-off
Auction results
Auction style
Average issue size
Secondary market
Average trade size
Daily trading volume
Quotation convention
Settlement period
Bid/offer spread
Regulations
Custodian
T-bonds
Ministry of Finance
Liquidity management
2Y-15Y
2Y, 3Y
Fixed
Semi-annual
91-day to 1Y
Zero
NA
Act/364
Wednesday
8:00
8:00
12:00-15:30
Multiple-price (3 decimal places)
UGX 90-120bn
Multiple-price (3 decimal places)
UGX 90-140bn
UGX 2-3bn
UGX 1-3bn
Gross yield
Same day
UGX 2-5bn
UGX 2-4bn
Yield (two decimal places)
T+0
50bps
Local custodian
Source: Bloomberg, Standard Chartered Research
Sub-Saharan Africa
Steady rise of the government bond market
2.6
6,500
5,500
2.1
USD bn (RHS)
4,500
1.6
3,500
2,500
1,500
2007
1.1
UGX bn
0.6
2008
2009
2010
2011
2012
Source: BOU
Swaps
Floating-rate reference calculation
Cross-currency swaps/interest
rate swaps
Average daily market volume NA
Average ticket size
NA – bilateral trades
Average bid/offer spread
150bps
Term
1-5Y
Liquid up to
NA
Settlement
T+2
Coupon frequency
Quarterly/semi-annually
Convention
Act/360 - Act/365
Floating-rate reference
As applicable
Floating-rate ticker
As applicable
Ticker (2Y)
UGSWL2/UGSW2
For cross-currency swaps, reference rate is 3M US LIBOR.
Main product
Source: Bloomberg, Standard Chartered Research
For interest rate swaps, the floating-rate reference is the 3M or
6M T-bill.
Source: Bloomberg
228
Local Markets Compendium 2014
Uganda
Rates
Account opening
Cash account
Local bank
Special requirements
None
Depository account
Local custodian
Trading account
Yes
Process duration
Approximately 2-5 days
Trade and settlement flowchart
Local custodian
1a. Client instructs local agent
(5:00 pm, T-1)
2. Settlement Instruction
(5:00 pm, T-1)
3. Money Wire and FX & Transfer Instruction
(5:00 pm, T-1)
4. Transaction
confirmation
(9.30am, TD)
Omnibus/Investor’s
sub-account
Local Bank
FX conversion
Investor
FCY A/C
1b. Trade
execution
Settlement and clearing
(5:00 pm, T-1)
Foreign
Investor
Investor
UGX A/C
Counterparty
1c. Confirmation
Central Depository System
Bond A/C
Investor
6. DVP Settlement
(TD)
Bank of Uganda
Cash A/C
Investor
Source: Standard Chartered Research
Regulations and taxation
Tax types
Additional notes
Foreign investment regulations Not restricted
Income tax for non-residents
20%
Capital gains tax
None
Withholding tax
Source: BoU, Standard Chartered Research
229
Counterparty
Sub-Saharan Africa
6. Trading Report (11:00, TD)
Counterparty
Local Markets Compendium 2014
Uganda
Rates
Market participants
Primary Dealers
x BoU introduced the Primary Dealer system in January 2005 to increase liquidity and boost secondary-market activity.
x There are currently six PDs in the Ugandan bond market.
x The role of the PD is to act as the market maker for government securities, participate in auctions and provide liquidity by
quoting effective two-way prices.
x The central bank is currently working on a reform of the PD regulatory framework, aimed at improving the system and creating
a competitive environment.
Banks
x Commercial banks are the largest investor group. Their holdings of government securities, however, decreased in the latter
part of 2011 in favour of ‘other’ investors
x Banks are typically active in the primary market, trading across the curve with a preference for T-bills and the 1Y to 3Y sector.
x Regulated by the BoU (http://www.bou.or.ug/bou/home.html)
Insurance companies
x The insurance sector remains a small part of the financial system.
x There are currently 25 licensed insurance companies, all under the supervision of the Uganda Insurance Commission.
Insurance companies concentrate on the 1Y-2Y sector but are largely absent from the secondary bond market.
x Regulated by the Uganda Insurance Commission (http://www.uginscom.go.ug/establishment.php)
Sub-Saharan Africa
Pension funds
x The National Social Security Fund (NSSF) is Uganda’s state-run pension fund and has a monopoly on pension provision in
the country. Both companies and employees make mandatory contributions totalling 15% of their gross salary.
x The NSSF follows an extremely conservative ‘buy and hold’ strategy and has rarely engaged in secondary trading recently.
The bulk of its government bond holdings are in the 2Y, 3Y and 5Y tenors.
x Uganda is in the process of opening up its pension fund industry.
x Regulated by the Uganda Insurance Commission (http://www.uginscom.go.ug/establishment.php)
Foreigners
x Foreign investors made a significant return to the Ugandan bond market between end-2011 and early 2012, increasing their
holdings to more than 22% of the total outstanding from close to zero before.
x Initially, offshore flows were concentrated in short-term T-bills for carry trade; they gradually moved up the curve in
anticipation of lower inflation.
Source: BoU, UIC, Standard Chartered Research
Ownership by participant (UGX tn)
Ownership by participant (%)
3.0
80
70
60
50
40
30
20
10
0
2007
Banks
2.5
2.0
Others
1.5
1.0
Insurance
0.5
BoU
0.0
2007
2008
2009
2010
2011
2012
Banks
Others
Insurance
BoU
2008
2009
2010
2011
Source: BoU, Standard Chartered Research
Source: BoU, Standard Chartered Research
Yield curve over time (%)
Debt profile – Government securities (UGX bn)
2012
2,500
25
20
2,000
End-2011
End-2012
15
10
2013
1,500
End-2010
1,000
500
End-2009
5
0
0
O/N 6M 1Y
2Y
3Y
Source: BoU, Standard Chartered Research
5Y
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
10Y
Source: BoU, Standard Chartered Research
230
Local Markets Compendium 2014
Uganda
Rates
Commercial banks – Asset growth is slowing
Commercial banks – LDR is trending higher
40
75
35
70
27
12
30
65
25
10
25
8
20
16
Assets
(UGX tn)
14
y/y growth
(%, RHS)
6
60
23
Government
bonds % of
assets
55
15
29
LDR (%, LHS)
21
10
50
19
2
5
45
17
0
2005
0
40
Q2-05
4
2006
2007
2008
2009
2010
2011
2012
15
Q2-06
Q2-07
Q2-08
Q2-09
Q2-10
Q2-11
Q2-12
Source: BoU, Standard Chartered Research
Source: BoU, Standard Chartered Research
Pension funds – Rising government holdings
Cross-sectional comparison of pension funds (2012)
3.0
100K
2.5
50
Assets
(UGX tn)
2.0
Pension fund/capita (USD)
60
40
1.5
30
20
1.0
Bonds % of
assets (RHS)
0.5
CH
IL
10K
NA ZA
1K
NG LK
100KE
TH
BG
HK
JP
FR
SG
NO
AT
HU
DE
MT
GH
UG
US
CS
10
GR
UA
10
1
0.0
2006
0
2007
2008
2009
2011
0
2012
5
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
Source: OECD, FIAP, Swiss Re, IMF, local sources including
pension fund associations, Ministry of Finance, central banks
231
50
55
60
65
Sub-Saharan Africa
Source: NSSF, Standard Chartered Research
2010
Local Markets Compendium 2014
Zambia
Delphine Arrighi
General
Monetary policy framework
Monetary policy tools
Name
Policy target
BoZ policy rate
x In April 2012, the BoZ introduced a new policy rate set at
9% .The overnight interbank rate is expected to trade within
a band of +/-2ppt around the policy rate. In September
2013, the policy rate was at 9.75%.
Bank of Zambia (BoZ)
Headline CPI inflation of 6% y/y in
2013
Independence
Low
Policy rate
BoZ policy rate
Bloomberg ticker
ZMCBRATE index
Deciding body
11-member committee
Policy decision-making One person, one vote
Decision meeting
Every month
frequency
Announcement time
NA
Press conference
NA
Minutes published
Bi-annual monetary policy statement,
monthly MPC communiqué
Open-market
Main instrument used to manage
operations (OMOs)
liquidity
Quarterly inflation
Fortnightly economic statistics
report
published on BoZ website
Source: BoZ, Standard Chartered Research
OMOs
x The BoZ uses T-bill auctions as a regular liquidity
management instrument. The frequency of T-bill auctions
was changed from weekly to fortnightly in January 2012.
Term deposits and repo/reverse repos are also in use. The
BoZ also introduced outright FX purchases and sales and
outright bond purchases and sales as OMOs in 2013.
Cash reserve ratio
x The reserve ratio for both local- and foreign-currency
deposits was lowered to 5% from 8% in November 2011
and has been unchanged since. The core liquid assets ratio
was lowered to 6% from 9%.
Source: BoZ, Standard Chartered Research
Sub-Saharan Africa
Exchange rate framework
Exchange rate regime
Floating (IMF)
Exchange rate target
No target, but ad-hoc FX intervention to smooth volatility
Intervention instruments
Through spot USD-ZMK
Convertible?
Yes
Deliverable?
Yes
Fixing time and place
Spot date, fixing
12:00, Lusaka
Fixing methodology
NA
T+2, no official fixing
Source: BoZ, Standard Chartered Research
Economic and financial indicators
Government balances (% of GDP)
2011
2012
2013F
2014F
0.0
Real GDP, change
6.6
7.0
7.4
7.5
-0.5
CPI inflation*
8.8
6.4
7.2
8.2
-1.0
Current account/GDP
3.2
-3.5
-2.3
-0.4
-1.5
FX res./imports**
3.4
3.7
3.5
3.9
-3.2
-4.49
-4.55
-3.44
Primary balance/GDP
-1.7
-2.5
-2.5
-1.8
Gen. govt. debt/GDP
25.13
26.87
28.73
29.66
-3.0
External debt/GDP
10.20
12.50
12.50
12.50
-3.5
NA
9.00
9.50
10.25
-4.0
S&P
B+
B+
Moody’s
NA
NA
Fitch
B+
B+
Country
rating
*Yearly average; **months of imports; ***year-end;
Source: BoZ, IMF, Standard Chartered Research
140
120
Fiscal balance/GDP
Policy rate***
160
100
-2.0
-2.5
Fiscal balance
80
60
40
-4.5
General govt.
debt (RHS)
0
-5.0
2004 2005 2006 2007 2008 2009 2010 2011 2012F 2013F 2014F
Source: IMF, Standard Chartered Research
232
20
Local Markets Compendium 2014
Zambia
FX
Exchange rate products
Spot
Availability
Daily trading volume
(USD mn)
Average trade size
(USD mn)
Bid/ask spread in ZMK
onshore*
Bid/ask spread in ZMK
offshore*
Reuters ticker
Outright forwards
Yes
80
NDFs
Options
FX swaps
Yes
10
10
1
3
NA
20
1M 10, 3M 25,
6M 50, 1Y 110
SCAI
SCAI
*Versus USD; for FX swaps, bid/ask spread refers to swap points vs. USD; Source: BoZ, Standard Chartered Research
Exchange rate regulation – Non-residents
Spot
Underlying asset – Trade and FDI
Underlying asset – Financial asset
Forwards
NDFs
Options
FX swaps
No restrictions
No restrictions
No underlying asset
NA
No restrictions (except on
lending below 1Y tenor)
No restrictions
Zambia’s foreign exchange market was fully liberalised in 1994 following the removal of restrictions on the current and capital accounts.
All borrowing must be registered with the BoZ for statistical purposes.
Information on borrowing abroad must be submitted to the BoZ for statistical purposes.
Non-residents can only access local liquidity funding for a minimum tenor of 1Y. Proof of real economic activity is required for short-tenor funding.
http://www.boz.zm/
Exchange rate regulation – Residents
Source: BoZ
Market participants
Corporates
Real-money
funds
Hedge funds
Interbank
60% x Exporters with USD receivables typically sell USD-ZMK forwards given ZMK trend appreciation.
x Importers enter into USD-ZMK forward contracts when the ZMK weakens.
5% x Real-money funds constitute a small part of the ZMK FX market; they are mostly active in bond
auctions and IPOs.
x Real-money funds typically leave their ZMK exposure unhedged owing to ZMK trend appreciation.
5% x Hedge funds have little involvement in ZMK owing to liquidity concerns and BoZ regulations.
x Investors with no underlying assets mainly trade ZMK through offshore forwards with limited liquidity.
30% x Interbank trading is mainly flow-driven and short-term in nature.
Source: Standard Chartered Research
ZMK REER and NEER – Trend NEER depreciation
110
105
100
95
90
85
80
75
70
65
60
2006
Source: BIS
C/A surplus is shrinking (USD bn)
C/A
3
FDI
Portfolio
Other
BoP
2
1
REER
0
-1
-2
NEER
-3
2007
2008
2009
2010
2011
2012
Dec-10
Source: IMF
233
Dec-11
Dec-12
Jun-13
Sub-Saharan Africa
x Since May 2012, the Ministry of Finance has required all local transactions to be paid/quoted in local currency only. In July 2013,
the BoZ introduced a new regulation aimed at monitoring all balance- of-payments transactions. Statutory instrument 55 (balance
of payments bill) requires exporters and importers to document all their proceeds. They are required to complete regulatory forms
for all their transactions. This is aimed at improving onshore FX liquidity and boosting domestic fiscal revenues
x For international transactions, where one party is outside the country but where goods and services are produced in Zambia,
quotations for prices have to be in ZMK. Payments can be made in foreign currency.
x The BoZ has increased capital requirements to USD 100mn for foreign banks and USD 12.5mn for local banks.
Local Markets Compendium 2014
Zambia
Rates
Bonds
T-bills
Issuer
Use of proceeds
Curve span
Common tenors
Coupon
Coupon frequency
Day count
Primary market
Auction day
Auction cut-off
Auction results
Auction style
Average issue size
Secondary market
Average trade size
Daily trading volume
Quotation convention
Settlement period
Bid/offer spread
Regulations
Custodian
T-bonds
Ministry of Finance
Fiscal financing
Fiscal financing
2Y-15Y
2Y-5Y
Fixed
Semi-annual
91d-1Y
Zero
NA
Act/365
Thursday
Friday
10:00
Thursday
Friday
Single bid (4 decimals), single -price
ZMK 450mn
ZMK 700mn
ZMK 5mn
ZMK 5-10mn
ZMK 10mn
ZMK 10-15mn
Gross yield (two decimal places)
T+2
T+3
100bps
Local custodian
Source: Bloomberg, Standard Chartered Research
Sub-Saharan Africa
Figure 1: Government bond market is growing
15,000
14,000
13,000
12,000
11,000
USD bn (RHS)
10,000
9,000
8,000
ZMK bn (LHS)
7,000
6,000
Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12
2.8
2.6
2.4
2.2
2.0
1.8
1.6
1.4
1.2
1.0
Source: BoZ
Swaps
Floating-rate reference calculation
Cross-currency swaps/interest
rate swaps
Average daily market volume NA
Average ticket size
NA - bilateral trades
Average bid/offer spread
150bps
Term
1-5Y
Liquid up to
NA
Settlement
T+2
Coupon frequency
Quarterly/Semi-annually
Convention
Act/360 - Act/365
Floating-rate reference
As applicable
Floating-rate ticker
As applicable
Ticker (2Y)
ZKSWL2/ZKSW2
For cross-currency swaps, the reference rate is 3M US
LIBOR.
Source: Bloomberg, Standard Chartered Research
Source: Bloomberg
Main product
For interest rate swaps, the floating reference rate is the 3M or
6M T-bill.
234
Local Markets Compendium 2014
Zambia
Rates
Account opening
Cash account
Local bank
Special requirements
Depository account
Local custodian
Trading account
Yes
Process duration
Approximately 2-5 days
Upon opening of custodial account at the Central Securities Depository, the investor will receive a Client Identification number
to trade securities listed on the Lusaka Stock Exchange
Trade and settlement flowchart
Local custodian
Omnibus/Investor’s
sub-account
4. Settlement Instruction
5. Money Wire and FX & Transfer Instruction
6. Trading Report
Local Bank
FX conversion
1. Transaction execution
Foreign
Investor
Counterparty
3. Confirmation
Investor
FCY A/C
Investor
ZMK A/C
Settlement and clearing*
2. Order match
Bond A/C
Investor
Counterparty
7. DVP Settlement
(T+3 or as
bilaterally
agreed)
Cash A/C
LuSE: Lusaka Stock Exchange
BoZ: Bank of Zambia
*RTGS system
Investor
Counterparty
Source: Standard Chartered Research
Regulations and taxation
Tax types
Additional notes
Foreign investment regulations Not restricted
Income tax for non-residents
15%
Offshore players can access local liquidity funding for a minimum
tenor of 1Y. Proof of real economic activity is required for shorttenor funding.
Capital gains tax
None
BoZ handling fee: 2% (medical levy of 1% lifted in 2013).
Source: BoZ, Standard Chartered Research
235
Sub-Saharan Africa
LuSE via BoZ
LuSE via BoZ
Local Markets Compendium 2014
Zambia
Rates
Market participants
Banks
x Banking institutions are the largest investor group, holding approximately 50% of total outstanding government securities.
x There are currently 18 banks, 5 of which are active in the secondary market.
x Only three banks have separate investment, trading and available-for-sale accounts.
x Banks are typically very active in the primary market and usually trade up to the 3Y maturity, with a preference for short-dated
paper.
x Regulated by the BoZ (http://www.boz.zm)
Pension funds and insurance companies
x There are four major pension funds in Zambia; the largest is the National Pension Scheme Authority (NAPSA).
x Most of their holdings are in government securities.
x NAPSA is typically active in both the primary and secondary markets and tends to invest across the maturity spectrum.
x Insurance companies tend to be far less active in the local bond market. They participate almost solely in the primary market
and pursue a ‘buy and hold’ strategy.
x Regulated by the Pension and Insurance Authority (http://www.pia.org.zm/)
Foreign investors
x Foreign investors’ holdings of government securities remains low, at around 5% of the total.
x Foreign investors can be split into two groups: foreign fund managers, which tend to buy and hold over a medium- to longterm horizon, and hedge funds, characterised by a shorter investment horizon.
x Foreign investors typically concentrate on the most liquid tenors, up to 2Y. 80% of foreign holdings are concentrated in T-bills.
Source: BoZ, PIA, Standard Chartered Research
Ownership by participant (ZMK tn)
Ownership by participant (%)
9
60
Banks
8
Sub-Saharan Africa
Banks
50
7
6
40
Others
5
Others
30
4
3
20
BoZ
2
BoZ
10
1
0
Jun-11
Foreigners
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
0
Jun-11
Dec-12
Foreigners
Sep-11
Dec-11
Mar-12
Jun-12
Source: BoZ, Standard Chartered Research
Source: BoT, Standard Chartered Research
Yield curve over time (%)
Debt profile – Loan bonds (ZMK bn)
Dec-12
1.6
21
End-2009
19
17
15
Sep-12
1.4
End-2011
1.2
End-2012
2013
1.0
End-2010
13
0.8
11
0.6
9
0.4
7
0.2
0.0
5
O/N 1Y 2Y 3Y 4Y 5Y
7Y 8Y 9Y 10Y
Source: Reuters, Standard Chartered Research
15Y
2013
2015
2017
2019
2021
Source: Bloomberg, Standard Chartered Research
236
2023
2025
2027
Local Markets Compendium 2014
Zambia
Rates
Commercial banks – Asset growth picking up again
Commercial banks – LDR is stabilising
40
90
40
Assets
(ZMK tn)
35
30
35
25
25
20
20
15
15
y/y growth
(%, RHS)
10
80
30
60
2012
15
40
30
10
Q1-09 Q3-09 Q1-10 Q3-10 Q1-11 Q3-11 Q1-12 Q3-12 Q1-13
2013
Source: BoZ, Standard Chartered Research
20
50
0
2011
25
LDR (%, LHS)
5
2010
30
70
10
5
0
2009
Government
bonds % of
assets
Source: BoZ, Standard Chartered Research
Commercial banks – Strong demand for bonds (ZMK bn)
16
14
60
Bond % of
deposits
(RHS)
55
50
45
12
40
10
35
30
8
Total deposits
6
Jan-09
25
20
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Sub-Saharan Africa
Source: BoZ, Standard Chartered Research
237
Local Markets Compendium 2014
Sub-Saharan Africa
This page is intentionally blank.
238
Latin America
Local Markets Compendium 2014
Brazil
Italo Lombardi | Mike Moran | Sophii Weng
General
Monetary policy framework
Monetary policy tools
Name
Policy target
Reserve requirements
Reserve requirements for banks range from 20% for time
deposits to 42% for sight deposits.
Banco Central do Brasil (BCB)
Headline CPI inflation target of 4.5%
+/- 2ppt
Independence
De facto independence since the
1999 currency devaluation
Policy rate
Overnight interbank loan rate (SELIC
rate)
Bloomberg ticker
BZSTSETA Index
Deciding body
Monetary policy committee: BCB
governor and 7 deputy governors
Policy decision-making One man, one vote; governor has the
deciding vote in split decisions
Decision meeting
Roughly every 6 weeks (8 times a
frequency
year)
Announcement time
Begins on Tuesday and lasts two
days; announcement usually
Wednesday night
Press conference
Short statement
Minutes published
8 days after the meeting
Open-market
To ensure policy rate maintained,
operations (OMOs)
manage liquidity
Quarterly inflation
At the end of each quarter
report
Source: BCB, Standard Chartered Research
OMOs
x The central bank borrows funds via security-selling auctions,
with commitments to repurchase. To manage short-term
liquidity, the central bank borrows funds at the overnight rate.
x The central bank conducts foreign exchange reverse swap
auctions.
Standing facilities
The central bank also accesses standing facilities, and has
recently borrowed resources for 2 business days through
these facilities.
Source: BCB, Anbima, Standard Chartered Research
Exchange rate framework
Exchange rate regime
Exchange rate target
Intervention instruments
Convertible?
Deliverable?
Latin America
Fixing time and place
Spot date, fixing
Fixing methodology
Floating (IMF)
No target, but active FX intervention to mitigate BRL volatility and ensure BRL NEER reflects
fundamentals
Through buy/sell USD on spot and derivatives market
Partially
Offshore non-deliverable
PTAX rate will be posted every hour between 10:00-13:00, Sao Paulo
Spot date T+2, fixing is 2 days prior to settlement
Central bank surveys 14 local dealers four times daily, taking the average (excluding 2 highest
and lowest quotes)
Source: IMF, BCB, Standard Chartered Research
Economic and financial indicators
Government balances (% of GDP)
2011
2012
2013F
2014F
0.0
Real GDP, change
2.70
0.90
2.20
4.00
-0.5
CPI inflation*
6.50
5.40
5.80
5.50
Current account/GDP
-2.40
-3.1
-2.40
FX res./imports**
18.70
18.50
19.30
19.80
Fiscal balance/GDP
-3.20
-2.59
-2.70
-3.50
Primary balance/GDP
3.10
2.10
1.80
2.20
Gen. govt. debt/GDP
36.40
35.20
33.60
32.30
-2.5
External debt/GDP
12.50
14.06
16.00
15.80
-3.0
Policy rate***
11.00
7.25
9.25
9.25
BBB
BBB
-3.5
Baa2
Baa2
-4.0
BBB
BBB
Country
rating
Moody’s
Fitch
*Yearly average; **months of imports; ***year-end;
Source: IMF, BCB, Standard Chartered Research
50
-1.0
-2.1
S&P
60
40
-1.5
30
-2.0
20
General govt.
debt (RHS)
Fiscal balance
0
2004 2005 2006 2007 2008 2009 2010 2011 2012F 2013F 2014F
Source: BCB
240
10
Local Markets Compendium 2014
Brazil
FX
Exchange rate products
Availability
Daily trading volume
(USD mn)
Average trade size
(USD mn)
Bid/ask spread in BRL
onshore*
Bid/ask spread in BRL
offshore*
Reuters ticker
Spot
Outright forwards
NDFs
Yes
Options
FX swaps
11,000
34,000
3,000
11,000
4,000
50
NA
5
25
10
0.0025-0.003
1M 0.0005, 3M 10
pips
0.5 vol
NA
0.0005
1M 0.0005
NA
0.001
BRL=STAC
1M 0.0002
BRLNDFOR=STAC
N/A
*Versus USD, for FX swaps, bid/ask spread refers to swap points vs. USD; Source: BIS, Triennial Central Bank Survey, September 2013
Exchange rate regulation – Non-residents
Spot
Underlying asset – Trade and FDI
Underlying asset – Financial asset
No underlying asset
Forwards
Documentation required
NDFs
Options
FX swaps
Registered onshore at Cetip or BMF
In general, to access the onshore BRL market, non-residents need to hold underlying assets.
For more details on Brazil’s FX regulations, see the following links: www.andima.com.br/english/publications/arqs/brazil_for_foreign_investors.pdf
www.andima.com.br/english/publications/arqs/brazil_for_foreign_investors.pdf
http://www.bcb.gov.br/ingles/SFN/archive/Highlights_on_licensing_procedures_for_foreigners.pdf, www.cvm.gov.br
Exchange rate regulation – Residents
Brazilian companies and individuals are allowed to purchase and sell foreign currency and transfer BRL abroad without limits.
However, they may have to justify the legality and economic reasons for the transfers and must report all transfers to the BCB.
Source: Standard Chartered Research
Market participants
Corporates
Real-money
funds
Hedge funds
Interbank
30% x Corporate clients are active in spot since they have commercial flows to convert from foreign currency
to BRL. They are also active in onshore NDFs and cross-currency swaps to hedge their future
exposure.
30% x Real-money funds, particularly those benchmarked against the GBI EM-GD, are active participants
attracted by high carry and the removal in 2013 of IOF taxes on financial transactions.
20% x Hedge funds are more opportunistic participants and typically more active in strong carry strategy
environments.
20% x Interbank participants are active intermediaries for corporates and ‘buy-side’ institutions.
Source: Standard Chartered Research
Trend C/A deficit (USD bn per quarter)
140
60
120
40
REER
100
C/A
FDI
Foreign portfolio
Other
BoP
20
80
0
60
-20
NEER
40
20
1996
Source: BIS
-40
-60
1998
2000
2002
2004
2006
2008
2010
2012
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: BCB, Standard Chartered Research
241
Latin America
BRL REER and NEER – The BRL appears overvalued
Local Markets Compendium 2014
Brazil
Rates
Bonds
Overnight rate-linked
bonds (LFT)
Issuer
Use of proceeds
Curve span
Common tenors
Coupon
Coupon frequency
Day count
Primary market
3Y to 6Y
3Y, 4Y, 5Y, 6Y
Zero-coupon discount
Fixed-rate bonds
Inflation linked bonds
bond (LTNs)
(NTN-Fs)
(NTN -Bs/NTN-Cs)
Treasury
Fiscal financing
1M to 3Y
4Y-10Y
1Y to 40Y
6M to 18M
4Y, 6Y, 8Y, 9Y and 10Y
3Y to 10Y
Zero
Fixed
NA
Semi-annual
Exponential business/252
Auction day
Tuesday (every two
weeks)
12:00-12:30
14:30
Tuesday
Auction cut-off
Auction results
Auction style
Average issue size
Secondary market
Average trade size
Daily trading volume
Quotation convention
Settlement period
NA
11:00-11:30
12:00
Typically multiple-price
BRL 50bn
BRL 40bn
NA
BRL 50mn
NA
BRL 13bn
BRL 20mn
NA
Yield Exp/252
T+1
NA
Bid/offer spread
1-2bps
Regulations
Custodian
NA
3-4bps up to 5Y and 710bps at the long end
2-4bps
Settles only locally in Brazil
Source: ANDIMA, Standard Chartered Research
Outstanding DFPD bonds held by the public and central
bank
2.0
BRL tn (LHS)
1.8
1.6
USD bn (RHS)
Latin America
1,200
0.50
1,100
0.45
1,000
0.40
0.35
900
0.30
800
1.4
1.2
1.0
2009
Secondary-market turnover ratio of govt. bonds
2010
2011
2012
0.25
700
0.20
600
0.15
500
0.10
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
2013
Source: Tesouro Nacional
Source: BCB, Standard Chartered Research
Swaps
Floating-rate reference calculation
Main product
Interest rate swaps
Average daily market volume BRL 100bn/day
BRL 20-100mn, depending on
Average ticket size
tenor
Average bid/offer spread
1-7bps
Term
Up to 10Y
Liquid up to
Liquidity is best up to 7Y
Settlement
T+1
Coupon frequency
Zero coupon
Convention
Exponential business/252
Brazil Cetip interbank deposit
Floating-rate reference
rate
Floating-rate ticker
BZDIOVRA Index (BBG)
Ticker (2Y)
BCSWFPD Curncy (BBG)
DDI futures are also known as the Coupon Cambial. They are
cross-currency contracts with a fixed USD leg representing
onshore USD products and a floating BRL leg. In a normal
currency forward contract, the USD LIBOR rate would be used
for the USD leg and the Brazil Interbank Deposit Certificate
Rate (CDI) would be used for the BRL leg. Since BM&F
settles onshore, USD LIBOR is not applied to the FX futures,
so a DDI is analogous to a cross-currency swap (USD x CDI).
Source: Bloomberg, Standard Chartered Research
The formula for any DDI is:
஻஽
ሺͳ ൅ ‫ܫܦ‬௥௔௧௘ ሻଶହଶ
͵͸Ͳ
‫ ܫܦܦ‬ൌ ቎
െ ͳ቏ ൈ
‫ܮܱܦ‬
‫ܦܣ‬
ܲܶ‫ܺܣ‬
Source: Standard Chartered Research
242
Local Markets Compendium 2014
Brazil
Rates
Account opening
Cash account
Depository account
Local bank (non-resident cash Local custodian
account known as 2689)
Special requirements
Trading account
Yes
Process duration
Approximately 3-5 days
Foreign investors must nominate one or more legal representatives through a power of attorney who is responsible for
(1) obtaining a registration code at the Brazilian SEC (CVM); (2) registering foreign exchange resources at the BACEN’s
Electronic Declaratory Registry; (3) registering with the Corporate Tax Registration (CNJP) or the Brazilian Individual Taxpayer
Registry (CPF); (4) opening a 2689 account, a sub-custodial account and a trading account with a local brokerage house, and
(5) subsequent maintenance and disclosure of the registrations and accounts.
Trade and settlement flowchart
Local custodian
3. Settlement Instruction
4. Money wire and FX & transfer instruction
Omnibus/Investor’s
sub-account
5. Match SWIFT instruction
6. Input trade for
SELIC
Local Bank
FX conversion
Investor
FCY A/C
1. Transaction execution
Foreign
Investor
Settlement and clearing*
Counterparty
2. Confirmation
Investor
BRL A/C
BACEN - SELIC
Bond A/C
Investor
Counterparty
7. DVP Settlement
(T+1, Negotiable)
BACEN - STR
BACEN: Banco Central do Brasil
SELIC: special system for settlement and custody of securities issued by
the National Treasury and the BACEN
STR: Central Bank Money Transfer System
*RTGS between SELIC and STR
Cash A/C
Counterparty
Source: Standard Chartered Research
Regulations and taxation
Tax types
Additional notes
Foreign investment regulations No tax
The IOF tax of 6% on foreign inflows to government bonds and
swaps was removed in June 2013. This reverses the IOF tax hikes
from 2% in September 2009 to 6% in October 2010, aimed at
countering hot money flows and BRL appreciation
Income tax for non-residents
Government bonds are
exempt
Capital gains tax
Generally, no income
tax on securities
investments on capital
gains
x 15% on private bonds and fixed income funds; on government
bonds from regions with ‘favoured taxation’, income tax is 1522.5%, the same as that applicable to residents
x 10% on swaps for investors from regions where income is taxed
and whose funds have been remitted in accordance with norms of
National Monetary Council
Capital gains on stock or stock indices outside exchanges: 15%
Source: Bloomberg, Reuters, Standard Chartered Research
243
Latin America
Investor
Local Markets Compendium 2014
Brazil
Rates
Market participants
Banks
x Reserve requirement for sight deposits: 42%
x Reserve requirement for time deposits: 20%
x Minimum national Basel index: 11%
x No significant off-balance-sheet operations
Contractual savings funds
x Asset allocation of PREVI funds is a function of various plan alternatives.
x ‘Plano 1’ has a limit of 60% to equities, maximum of 64%; limit of 28.7% to fixed income, maximum of 34%.
x Plano 1 holds 64% of its AUM in equities, 29% in fixed income.
x ‘Plano PREVI futuro’ holds 51% of AUM in fixed income and 34% in equities.
x For fixed income, no minimum amounts of short-term debt, public debt, etc. are required to be held.
x Benchmarks are blended between equity index, inflation plus a benchmark rate, etc.
x See www.previ.com.br for further information on asset allocation and investment strategy
Foreign investors
x Financial assets must be registered, custodied or kept in a deposit account of an institution authorised by the central bank or
CVM.
x Operations in derivatives markets can only be performed on registered exchanges in OTC markets regulated by CVM.
x SWF involvement in BRL bonds is relatively limited, although it has increased in recent months; more SWFs are considering
positions in local-currency instruments.
Others
x All OTC transactions must be registered in a centralised system; for government bonds, with the SELIC (central bank’s
special system of settlement and custody).
x Government bonds are traded OTC and on a screen-based trading platform operated by BMF Bovespa.
x CETIP is the clearinghouse for custody and settlement, depository of bonds, and processes issuing, redemption and custody
of securities.
x BMF Bovespa is the clearinghouse for spot, futures, options and swap contracts, and processing of daily margin calls.
Source: Brazil: Excellence in Security Transaction – Foreign Investor Guide
Ownership by participant (BRL bn)
Ownership by participant (%)
600
40
500
Financial
institutions
25
300
Funds
20
Pension
200
Latin America
30
Funds
400
Foreigners
15
Government
10
100
0
2008
Financial
institutions
35
Pension
Foreigners
Government
5
Others
Insurance
2009
2010
2011
2012
0
2008
2013
Insurance
2009
Others
2010
2011
Source: Tesouro Nacional, Standard Chartered Research
Source: Tesouro Nacional, Standard Chartered Research
Yield curve over time – Coming off (%)
Debt profile (BRL bn)
15
13
200
End-2010
12
150
End-2011
11
2013
100
10
9
2013
250
End-2009
14
2012
50
End-2012
8
0
7
3M6M 1Y
2Y
3Y
4Y
5Y
Source: Bloomberg, Standard Chartered Research
6Y
9Y
2013
10Y
2016
2019
2022
2025
Source: Bloomberg, Standard Chartered Research
244
2028
2031
2034
2037
2040
Local Markets Compendium 2014
Brazil
Rates
Commercial banks – Asset growth is picking up
Loan-to-deposit ratio is trending higher (%)
35
90
30
89
5
25
88
4
20
3
15
7
Assets
(BRL tn)
6
y/y growth
(%, RHS)
2
86
10
1
5
0
Jun-09
0
Dec-09
Jun-10
Dec-10
Jun-11
Dec-11
Jun-12
87
85
84
Q2-09
Dec-12
Q4-09
Q2-10
Q4-10
Q2-11
Q4-11
Q2-12
Q4-12
Source: BCB, Standard Chartered Research
Source: BCB, Standard Chartered Research
Increasing demand for govt. bonds from the insurance
sector (BRL bn)
Cross-sectional comparison of insurance density (2012)
10K
80
Insurance density (USD)
70
60
50
40
30
20
CH
MT
PT
1K
LT
100
SG
BH
OM
BR
MX
USHK NO
AE
TT
UY
10
SV
10
1
0
2006
0
2007
2008
2009
2010
2011
Source: Tesouro Nacional, Standard Chartered Research
Equities
Balanced/mixed
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
50
Money market
Others
1.0
0.5
100K
AU
10K
BR
1K
2008
2009
2010
2011
NO
MY
DE
100
AE
LT
BG
RU
10
PA
VN JO
0
2012
CH US
MX
MA
1
2007
SG
HK
5
BW
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
50
55
60
Source: SINDAPP, Standard Chartered Research
Source: ICI, Swiss Re, IMF, Ministry of Finance, central banks
Pension funds – Assets are rising (BRL bn)
Cross-sectional comparison of pension funds (2012)
100K
20
700
600
Pension fund/capita (USD)
Bonds as % of
assets (RHS)
15
500
400
10
300
Assets
(BRL bn)
200
5
CH
IL
10K
NA
HK
JP
FR
LK
TH
BG
SG
NO
AT
BR MX
1K
US
65
HU
DE
MT
100
CS
10
GR
UA
100
1
0
2004
2005
Source: OECD
2006
2007
2008
2009
2010
2011
0
2012
0
5
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
Source: OECD, FIAP, Swiss Re, IMF, local sources including
pension fund associations, Ministry of Finance, central banks
245
50
55
60
65
Latin America
Mutual fund/capita (USD)
1.5
2006
65
1M
2.0
2005
60
Cross-sectional comparison of mutual funds (2012)
Fixed income
IE
0.0
2004
55
Source: Swiss Re, IMF, Standard Chartered Research
Mutual funds breakdown (BRL tn)
2.5
5
2012
Local Markets Compendium 2014
Mexico
Italo Lombardi | Mike Moran | Sophii Weng
General
Monetary policy framework
Monetary policy tools
Name
Policy target
Independence
Reserve requirements
Mexico targets a zero overnight reserve balance, requiring
frequent open-market operations.
Banco de México (Banxico)
Headline CPI inflation target of 3%
Banxico was granted formal
independence in 1994
Policy rate
Overnight policy rate (TdF)
Bloomberg ticker
MXONBR Index
Deciding body
Governor and 4 deputy governors
Policy decision-making Chair of central bank has final vote on
policy decisions
Decision meeting
Roughly every 6 weeks (8 times a
frequency
year)
Announcement time
Typically Friday 09:00 Mexico City
time
Press conference
Statement following policy meetings
Minutes published
2 weeks later
Open-market
To ensure policy rate maintained,
operations (OMOs)
manage liquidity
Quarterly inflation
Yes; Feb, May, Aug, Nov scheduled
report
for 2012 and 2013
Source: Banxico, Standard Chartered Research
OMOs
x OMOs are carried out with the aim of attaining a zero balance
of banks’ current accounts at Banxico at the end of each day.
x Banxico will continue to provide or withdraw all liquidity
through these operations. Most commonly used instruments
are auctions of credits, deposits and repos.
Standing facilities
x Conditions for accessing liquidity facilities include: maturity
of 1 day, with automatic renewal until the institution decides
to stop; an interest rate 1.1x the current target rate; and
collateralised by monetary regulation deposits or USD
deposits.
x Banxico has established an additional liquidity facility
allowing institutions that do not have eligible collateral
securities in the existing facility to access liquidity using a
broader range of eligible assets.
Source: IMF, Banxico, Standard Chartered Research
Exchange rate framework
Exchange rate regime
Floating (IMF)
Exchange rate target
No exchange rate target
Intervention instruments
Sells USD 400mn when the MXN depreciates against the USD by 2% relative to the prior day’s
fixing
Convertible?
Yes
Deliverable?
Yes
Fixing time and place
Spot date, fixing
14:00, Mexico City
Fixing methodology
Rate published by central bank is the average rate surveyed from at least 4 local banks
Spot date T+2, fixing is 2 days prior to settlement
Latin America
Source: Banxico, Standard Chartered Research
Economic and financial indicators
2011
Government balances (% of GDP)
2012
2013F
Real GDP, change
3.8
3.9
3.2
4.0
CPI inflation*
3.8
3.6
3.8
3.8
-0.7
-0.8
-1.0
-1.2
4.9
5.1
4.8
4.5
Current account/GDP
FX res./imports**
Fiscal balance/GDP
-2.5
-2.6
-2.6
-2.8
Primary balance/GDP
-0.2
-0.2
-0.4
-0.8
40.400
37.998
37.994
38.295
External debt/GDP
10.6
10.2
10.4
10.3
Policy rate***
4.50
4.50
3.50
5.00
Gen. govt. debt/GDP
S&P
Country
rating
Moody’s
Fitch
BBB
BBB
Baa1
Baa1
BBB
BBB
*Yearly average; **months of imports; ***year-end;
Source: IMF, Banxico, Standard Chartered Research
0.5
2014F
45
Fiscal balance
0.0
40
35
-0.5
30
-1.0
General govt.
debt (RHS)
25
20
-1.5
15
-2.0
10
-2.5
5
0
-3.0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013F 2014F
Source: IMF, Secretaria de Hacienda y Credito Publico
246
Local Markets Compendium 2014
Mexico
FX
Exchange rate products
Spot
Availability
Daily trading volume
(USD mn)
Average trade size
(USD mn)
Bid/ask spread in MXN
onshore*
Bid/ask spread in MXN
offshore*
Reuters ticker
Outright forwards
Yes
57,000
14,000
USD 5-20
50
0.0025
NDFs
Options
FX swaps
Yes
6,000
59,000
30
20
NA
1M 0.01, 3M 0.01, 6M
0.01, 12M 0.015
0.5 vol
NA
NA
1M 0.01, 3M 0.01 pips,
6M 0.01, 12M 0.015
NA
NA
*Versus USD, for FX swaps, bid/ask spread refers to swap points vs. USD; Source: BIS, Triennial Central Bank Survey, September 2013
Exchange rate regulation – Non-residents
Spot
Underlying asset – Trade and FDI
Underlying asset – Financial asset
No underlying asset
Forwards
No restrictions
NDFs
Options
NA
FX swaps
No restrictions
See the Banxico website, including the following links: http://www.banxico.org.mx/portal-mercado-cambiario/foreign-exchange-markets--exc.html,
http://www.banxico.org.mx/sistema-financiero/estadisticas/mercado-cambiario/banco-mexico-s-foreign-exchan.html,
http://www.banxico.org.mx/disposiciones/marco-juridico/ley-del-banco-de-mexico/%7B74481036-5967-73EE-18B1-602D30C646E2%7D.pdf#21
Exchange rate regulation – Residents
x Financial institutions have to report transactions exceeding USD 10,000 to the SHCP (Ministry of Finance and Public Credit).
x Monthly limit of USD 4,000 in cash for Mexican private account holders to exchange local currency to USD, effective since 2010.
x For non-account holders, the USD purchase limit is USD 300 per day; purchases cannot exceed USD 1,500 per month.
Source: Standard Chartered Research
Market participants
Corporates
Real-money
funds
Hedge funds
Source: Standard Chartered Research
MXN REER and NEER – The MXN appears fairly valued
Strong portfolio inflows (USD bn per quarter)
40
180
REER
140
Portfolio
Other
BoP
20
120
10
100
0
-10
80
NEER
60
Source: BIS
FDI
30
160
40
1996
C/A
-20
-30
1998
2000
2002
2004
2006
2008
2010
2012
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: Banxico, Standard Chartered Research
247
Latin America
Interbank
20% x Corporates have been more conservative since 2008 and are now active hedgers.
x Transaction hedges are typically executed out to 3M, but greater corporate FDI could increase activity
in coming years.
30% x Local funds (pension funds) maintain high hedge ratios, in line with regulatory requirements.
x Offshore funds are typically attracted by local yields and keep FX hedge ratios high, especially funds
benchmarked to the GBI EM-GD.
20% x Funds active in local rates markets typically do not fully hedge FX exposure.
x High correlation with US equities makes MXN a popular FX proxy trade.
20% x Interbank participants are active intermediaries for corporates and ‘buy-side’ institutions.
Local Markets Compendium 2014
Mexico
Rates
Bonds
CETES
Issuer
Use of proceeds
Curve span
MBONOS
BONDES
UDIBONOS
Treasury
Finances Federal Government
Retired CB debt
28-day to 1Y
3Y-30Y
3Y, 5Y
28-day, 91-day, 1753Y, 5Y, 10Y, 20Y, 30Y
182-day, 1Y
Zero
Fixed
28-day float
NA
Semi-annual
Monthly
Act/360
Common tenors
Coupon
Coupon frequency
Day count
Primary market
Weekly for 28D, 91D,
182D; monthly for 1Y
Auction day
Auction cut-off
Auction results
Auction style
Average issue size
Secondary market
Average trade size
Daily trading volume
MXN 100mn
MXN 10.3bn
Quotation convention
3Y, 5Y, 10Y, 30Y
Fixed
Semi-annual
Varies; monthly for
Bi-weekly
shorter maturities
10:00-11:00 for bidding
Central bank website, typically on Tuesday morning
Single-price
NA
MXN 50-100mn
MXN 11.5bn
Nominal yield
Settlement period
Bid/offer spread
Regulations
Custodian
Finance Treasury
3Y-30Y
5-10bps
MXN 30-50mn
MXN 1.2bn
Spread over interbank
rate
T+3/T+4
3-5bps
Banco de Mexico
Monthly
MXN 5-10mn
MXN 2.2bn
Nominal yield
5-10bps
Euroclear
Source: Bloomberg, Standard Chartered Research
Latin America
Steady rise of the government bond market
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
2001
Average daily turnover ratio of govt. bonds in circulation
USD bn (RHS)
MXN tn (LHS)
2003
2005
2007
2009
2011
400
3.5
350
3.0
300
2.5
250
2.0
200
1.5
150
1.0
100
0.5
50
0.0
2008
2013
2009
2010
2011
Source: Banxico, Bloomberg
Source: Banxico, Standard Chartered Research
Swaps
Floating-rate reference calculation
Main product
Average daily market volume
Average ticket size
Average bid/offer spread
Term
Liquid up to
Settlement
Coupon frequency
Convention
Floating-rate reference
Floating-rate ticker
Ticker (2Y)
Interest rate swaps
MXN 20-40bn
MXN 250mn-1bn
3-5bps
28-day increment
2Y-10Y
T+1
28 days
No accrual
Interbank interest rate average
MXIBTIIE <Index>
MPSW2 <Index>
Source: Bloomberg, Reuters, Standard Chartered Research
2012
2013
Banxico sets the TIIE (Tasa de Interés Interbancaria de
Equilibro) fixing rate via a survey of quotations from at least 6
banks. If Banxico does not receive 6 quotes, then it will set the
equilibrium rate based on prevailing conditions in the money
market. Banxico publishes the TIIE fix (including all
contributing quotations) on its website for next-day value at
12:30 local time daily.
Source: Bloomberg, Standard Chartered Research
248
Local Markets Compendium 2014
Mexico
Rates
Account opening
Cash account
Euroclear or local bank
Special requirements
None
Depository account
Euroclear or local custodian
Trading account
Yes
Process duration
Varies from 2 days to 3 weeks
Trade and settlement flowchart
Global/Local custodian
Omnibus/Investor’s
sub-account
3. Settlement Instruction
4. Money wire and FX & transfer instruction
5. Order matching
Local bank
FX conversion
Investor
FCY A/C
Settlement and clearing
1. Transaction execution
Foreign
investor
Counterparty
2. Confirmation
Investor
MXN A/C
INDEVAL - SIDV
Bond A/C
Investor
Counterparty
6. DVP Settlement
(maximum of T+4)
Cash A/C
Investor
SIDV: Sistema Interactivo de Deposito de Valores
Counterparty
Source: Standard Chartered Research
Regulations and taxation
Additional notes
Foreign investment regulations Not restricted
No withholding taxes
Income tax for non-residents
Exempt
Exempt
Capital gains tax
No separate capital
gains taxes on
securities transactions
0.5% of interest generated
Source: Bloomberg, Reuters, Standard Chartered Research
249
Latin America
Tax types
Local Markets Compendium 2014
Mexico
Rates
Market participants
Banks
x Banks tend to invest in bonds of shorter duration for liquidity reasons.
x There is significant foreign participation in the Mexican banking system.
x Deposit growth is approximately 10% y/y.
x Reserve requirement is 10.5%.
x Regulated by Banco de Mexico (www.banxico.org.mx)
Pension funds
x AFORES system holds assets surpassing MXN 1.5tn, divided among 15 different managers.
x Top 3 firms manage 39% of total accounts.
x 60% of assets are in government debt.
x There are currently over 28mn private pension accounts in Mexico.
x AFORES accounts can be classified into five different types of plans, which vary based on the aggressiveness of asset
allocation.
Foreign investors
x Foreign investment in Mbonos has accelerated in recent years, especially as a function of the carry earned in Mexican local
markets.
x Foreign investors are active in the TIIE market as a means of expressing views on local rates.
x They account for approximately one-quarter of local bonds outstanding.
x Non-residents are less likely to participate in the inflation-linked notes market.
x SWF involvement in MXN bonds is relatively limited, although it has increased in recent months; more SWFs are considering
positions in local-currency instruments.
Mutual funds
x Assets under management total MXN 1.24tn.
x Government bonds account for 60% of AUM, while equities account for around 12% of AUM.
x Active in primary auctions of Cetes, Mbonos.
x Less active in the inflation-linked bond market.
x Comision Nacional Bancaria de Valores provides oversight: (www.cnbv.gob.mx)
Source: Standard Chartered Research
Local bond market ownership by participant (MXN tn)
Ownership by participant (%)
40
2.0
Foreigners
30
1.5
Latin America
1.0
Other local
residents
25
20
Mutual funds
Banks
Insurance
2009
2010
2011
Pension
15
Pension
0.5
0.0
2008
Foreigners
Other local
residents
35
10
2012
Insurance
5
Banxico
2013
0
2008
Banxico
2009
2010
2011
Source: Banxico, Standard Chartered Research
Source: BoT, Standard Chartered Research
Mbono yield curve over time – Moving lower (%)
Debt profile – Bonds (MXN bn)
9
End-2009
8
End-2010
7
End-2011
2013
6
End-2012
4
3M1Y 2Y 3Y 4Y 5Y 6Y 7Y 8Y 9Y10Y 12Y
15Y
20Y
25Y
2012
2013
900
800
700
600
500
400
300
200
100
0
5
Source: Bloomberg, Standard Chartered Research
Mutual funds
Banks
2013
30Y
2016
2019
2022
2025
Source: Bloomberg, Standard Chartered Research
250
2028
2031
2034
2037
2040
Local Markets Compendium 2014
Mexico
Rates
Commercial banks – Asset growth is stabilising
4.5
Loan-to-deposit ratio is stabilising
Assets
(MXN tn)
4.0
LDR (%, LHS)
25
3.5
3.0
90
20
2.5
35
80
15
2.0
10
1.0
y/y growth
(%, RHS)
0.5
2003
2005
2007
2009
5
60
0
50
Q1-05
2011
Q1-07
Q1-08
Q1-09
Q1-12
Q1-13
Source: Banxico, Standard Chartered Research
Increasing demand for govt. bonds from the insurance
sector (MXN bn)
Cross-sectional comparison of insurance density (2012)
10K
Insurance fund/capita (USD)
200
150
100
50
25
20
Q1-06
Source: CNBV, Standard Chartered Research
250
30
Government
bonds % of
assets
70
1.5
0.0
2001
40
100
30
CH
MT
1K
LT
100
SG
BH
OM
BR
MX
USHK NO
AE
PT
TT
UY
10
SV
1
0
2006
0
2007
2008
2009
2010
2011
5
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
2012
50
55
60
Source: Banxico, Standard Chartered Research
Source: Swiss Re, IMF, Standard Chartered Research
Mutual funds breakdown (MXN tn)
Cross-sectional comparison of mutual funds (2012)
Equities
Corporate bond
Balanced/mixed
Bank bond
Government bond
1M
IE
1.0
0.5
0.0
2008
100K
AU
10K
BR
1K
2011
2012
NO
MY
DE
100
AE
LT
BG
RU
10
PA
VN JO
0
2010
CH US
MX
MA
1
2009
SG
HK
5
BW
10
15
2013
20 25 30 35 40 45
GDP PPP/capita (USD '000)
50
55
60
Source: CNBV, ICI, Standard Chartered Research
Source: ICI, Swiss Re, IMF, Ministry of Finance, central banks
Pension funds – Stable ownership of government bonds
Cross-sectional comparison of pension funds (2012)
70
1.6
65
60
1.4
55
50
1.2
45
Pension fund
assets
(MXN tn)
1.0
0.8
2008
100K
75
Bonds % of
assets (RHS)
Pension fund/capita (USD)
1.8
40
35
2010
2011
10K
NA
LK
TH
BG
US
HK
JP
FR
SG
NO
AT
BR MX
1K
HU
DE
MT
100
CS
10
GR
UA
0
2012
Source: Comision Nacional Bancaria y de Valores, FIAP, Standard Chartered Research
IL
1
30
2009
CH
65
5
10
15
20 25 30 35 40 45
GDP PPP/capita (USD '000)
Source: OECD, FIAP, Swiss Re, IMF, local sources including
pension fund associations, Ministry of Finance, central banks
251
50
55
60
65
Latin America
Mutual fund/capita (USD)
1.5
65
Local Markets Compendium 2014
Appendix 1 – Foreign exchange framework
Country
Exchange rate
regime
Exchange rate
target
Intervention
instruments
Convertible? Deliverable?
Fixing time
and place
Spot date,
fixing
Bangladesh
Other managed
arrangement
No target, but BB
intervenes actively to
mitigate BDT volatility
Verbal intervention and
through spot USD-BDT
Partially
No
NA
T+2, but most
deals are
based on
today's value
China
Crawl-like
arrangement
Gradual appreciation in
the medium term to
reduce trade surplus and
to prompt rebalancing of
economic growth
Buys/sells CNY in the
spot market through the
China Foreign
Exchange Trade
System (CFETS) to
manage its daily
movements; daily
trading band of +/-1%
around fix
Partially
No
09:15, Beijing
Spot date
T+2, fixing is
2 days prior
to settlement
Offshore
Renminbi
China's exchange None for USD-CNH
rate regime is
classified as a
crawl-like
arrangement;
USD-CNH
typically trades
close to USDCNY onshore,
albeit not at
exactly the same
level
Clearing bank is active
in spot and forwards
Fully
convertible
outside
mainland
China
Yes
11:00,
published at
11:15, Hong
Kong
T+2
Hong Kong
Currency board
USD-HKD kept within the
Convertibility Band of
7.75-7.85
Through spot USD-HKD Yes
onshore
Yes
11:00, Hong
Kong
T+2
India
Floating
No target; more active FX Through spot USD-INR
intervention recently to
and FX forwards
mitigate INR volatility
Partially
No
Central bank
observation
around 12:30,
Mumbai
T+2
Indonesia
Floating
No target, but active FX
intervention to mitigate
USD-IDR volatility
Mainly through spot
USD-IDR and
occasionally through
sell/buy FX swaps
Partially
No
10:00 Jakarta T+2, fixing
time (Jakarta
2 days prior
Interbank
to settlement
Sport Dollar
Rate –
JISDOR),
11:30
Singapore time
(offshore)
Malaysia
Other managed
arrangement
No target, but active FX
intervention to mitigate
MYR volatility and ensure
MYR NEER reflects
fundamentals
Through spot USD-MYR Partially
and sell/buy FX swaps
onshore
No
11:10, Kuala
Lumpur
Mongolia
Floating
No target, but BoM holds
foreign exchange
auctions on Tuesdays
and Thursdays to limit
excess liquidity if
necessary
Through spot and FX
forwards and swaps
Yes
Yes
Fixed at close T+2
of business the
previous day
Pakistan
Floating
No target, but active FX
intervention to mitigate
PKR volatility
Through spot USDPKR, FX forwards and
FX swaps
Partially
No
15:30, Karachi
T+2
Philippines
Floating
No target, but BSP
frequently intervenes to
mitigate PHP volatility
Through spot USD-PHP Partially
and sell/buy FX swaps
onshore
No
11:30, Manila
Spot date is
T+1, fixing
1 day prior to
settlement
Singapore
Other managed
arrangement
The MAS targets the
SGD NEER, which is
allowed to fluctuate within
an undisclosed policy
band. The slope, centre
and width of the band
reflect the MAS' monetary
policy stance.
Through spot USD-SGD Yes
and sell/buy FX swaps,
both onshore and
offshore
Yes
11:30,
Singapore
T+2, fixing 2
days prior to
settlement
252
T+2, fixing 2
days prior to
settlement
Local Markets Compendium 2014
Appendix 1 – Foreign exchange framework
Country
Exchange rate
regime
Exchange rate
target
Intervention
instruments
Convertible? Deliverable?
Fixing time
and place
Spot date,
fixing
South Korea
Floating
No target, but fairly
frequent FX intervention
to mitigate KRW volatility
Through spot USDKRW, offshore nondeliverable forward
(NDF) and onshore FX
swap markets
Partially
No
Market
Average Rate
(MAR)
announced at
15:15 Seoul
time
T+2, fixing 2
days prior to
settlement
Sri Lanka
Floating
No target, but active FX
intervention to mitigate
LKR volatility
Through spot USD-LKR
Partially
No
12:10,
Colombo
T+2
Taiwan
Flexible (CBC)
No target, but may
Through spot USDintervene to mitigate TWD TWD and sell/buy FX
volatility
swaps onshore
Partially
No
11:00, Taipei
T+2, fixing 2
days prior to
settlement
Thailand
Floating
No target, but active FX
intervention to mitigate
THB volatility and ensure
THB NEER reflects
fundamentals
Through spot USD-THB
and sell/buy FX swaps
onshore
Partially
Yes
T+2
11:00,
Bangkok
(onshore),
11:30
Singapore time
(Offshore)
Vietnam
Stabilised
arrangement
Loosely pegged to the
USD; daily USD-VND
trading band is +/-1%
around the reference rate
Through spot USD-VND Partially
No
Spot fixing is
at 11:00,
Hanoi
T+2, fixing 2
days prior to
settlement
Bahrain
Conventional peg
USD-BHD kept within a
band of 0.375-0.377
Primarily through spot
USD-BHD
Yes
Yes
12:00,
Manama
T+2
Egypt
Other managed
arrangement
No target, but CBE has
Primarily through spot
the power to regulate and USD-EGP
manage the foreign
exchange market;
Law No. 88 of 2003 of the
Central Bank, the
Banking Sector and
Money Chapter 2 Article 6
Partially
Yes
NA
T+2
Jordan
Conventional peg
Active FX intervention to
maintain peg at 0708000.71000
Through spot USD-JOD Yes
and sell/buy FX swaps,
both onshore and
offshore
Yes
10:40, Amman
T+2
Kuwait
Conventional peg
Exchange rate stability
Primarily through spot
USD-KWD
Yes
Yes
08:00, Kuwait;
10:00
Ramadan
timing
T+2
Lebanon
Stabilised
arrangement
USD-LBP kept within a
band of 1,501-1,514
Mainly through spot
USD-LBP
Yes
Yes
NA
T+2
Oman
Conventional peg
USD-OMR kept within a
band of 0.3840-0.3850
Through spot USDOMR and sell/buy FX
swaps, both onshore
and offshore
Yes
Yes
NA
T+2
Qatar
Conventional peg
USD-QAR kept within a
band of 3.6385-3.6415
NA
Yes
Yes
NA
T+2
Saudi Arabia
Conventional peg
USD-SAR kept within a
band of 3.7400-3.7500
Through spot and
swaps
Yes
Yes
NA
T+2
Turkey
Floating
No target
Spot auctions/spot
(rare)
Yes
Yes
10:30-15:30,
Istanbul
T+1
UAE
Conventional peg
USD-AED kept within a
band of 3.6720-3.6730
FX swaps
Yes
Yes
NA
T+2
Angola
Stabilised
arrangement
No official target, but the
BNA intervenes to
maintain AOA stability
No
No
NA
T+2
Botswana
Crawling peg.
The BWP
exchange rate is
officially
determined with
reference to a
weighted basket
of currencies
composed of the
SDR and the ZAR
The rate of crawl of the
BWP is set as the
difference between the
BoB's inflation objective
and forecast inflation in
major trading-partner
countries. The current
rate of the downward
crawl is -0.16% per
annum.
Yes
Yes
NA
T+2, but most
deals are
based on
today's value
The central bank
provides unlimited spot
liquidity according to its
formula.
253
Local Markets Compendium 2014
Appendix 1 – Foreign exchange framework
Country
Exchange rate
regime
Cameroon
Exchange rate
target
Intervention
instruments
Convertible? Deliverable?
Fixing time
and place
Spot date,
fixing
Conventional peg. EUR-XAF fixed at
Member of the
655.957
Central Africa
Economic and
Monetary
Community
(CEMAC)
Spot
Partially
Yes, only in
the franc
zone
NA
T+2
Côte d’Ivoire
Conventional peg. EUR-XOF fixed at
Member of the
655.957
West Africa
Economic and
Monetary Union
(WAEMU)
Spot
Partially
Yes, only in
the franc
zone
NA
T+2
Ghana
Floating
No target, little direct FX
intervention, but
regulations changed in
May 2012
Through spot USD-GHS Yes
Yes
06:40, Accra
T+2
Kenya
Floating
No target, little FX
intervention
Through spot USD-KES
Yes
Yes
06:30, Nairobi
NA
Mauritius
Floating
No target exchange rate; Through spot USDBoM intervention is aimed MUR
largely at preventing
exchange rate volatility
Yes
Yes
NA
T+2; sameday value is
common in
commercial
dealing
Mozambique
Floating
No target, but the Bank of NA
Mozambique regularly
intervenes in the market
to smooth volatility
Yes
yes
NA
T+2
Nigeria
Other managed
arrangement
CBN currently targets
USD-NGN at 155 +/- 3%
Bi-weekly WDAS have
been suspended and
replaced with Retail
DAS with effect Oct 2,
where FX is sold to
authorised dealers
strictly for client
transactions
Partially
Yes
06:40, Abuja
T+2,
NIFEX01
South Africa
Floating
No target, but ad-hoc FX
intervention to curb ZAR
strength and ensure ZAR
NEER reflects
fundamentals
Through spot USD-ZAR
and sell/buy FX swaps
both onshore and
offshore
Yes
Yes
16:00, London
T+2, WMR fix
Tanzania
Floating
No target
NA
Yes
Yes
NA
T+2
Uganda
Floating
Through spot USD-UGX Yes
No target; BoU's
involvement in the foreign
exchange market is
limited to occasional
intervention to dampen
excessive exchange rate
volatility
Yes
06:40, offshore T+2, no
official fixing
Zambia
Floating
No target, but ad-hoc FX
intervention to smooth
volatility
Through spot USD-ZMK Yes
Yes
12:00, Lusaka
T+2, no
official fixing
Brazil
Floating
No target, but active FX
intervention to mitigate
BRL volatility and ensure
BRL NEER reflects
fundamentals
Through buy/sell USD
on spot and derivatives
market
Partially
No
PTAX rate will
be posted
every hour
between
10:00-13:00,
Sao Paulo
Spot date
T+2, fixing is
2 days prior
to settlement
Mexico
Floating
No target
Sells USD 400mn when
the MXN depreciates
against the USD by 2%
relative to the prior
day's fixing
Yes
Yes
14:00, Mexico
City
Spot date
T+2, fixing is
2 days prior
to settlement
Source: Multiple sources, Standard Chartered Research
254
Local Markets Compendium 2014
Appendix 2 – Foreign exchange products
Spots
Country
Availability
Daily
Average
trading
trade
volume
size
(USD mn) (USD mn)
FX swaps
Bid/ask
spread in
local
currency
onshore
vs. USD
Reuters
ticker
Availability
Daily
trading
volume
(USD mn)
1M bid/ask
spread in
Average
local
trade size currency
(USD mn)
vs. USD
(swap
points)
Reuters
ticker
NA
NA
NA
NA
SCSHFX
Case-bycase basis
Yes
41,000
30
0.0005
SCSHFX
SCBHK08
Yes
10,000
30
NA
SCBHK08
0.0003
SCBHK09
0.01
SCBY
5 (normal
JISDOR
times)
0.002
MYRFIX2
On request
NA
0.05-0.1
SCPK
(all tenors)
0.02
SCML
0.0002
ABSFIX01
0.1
NA
Yes
Yes
47,000
10,000
10-15
10
0.0002
0.01
SCBHK09
SCBY
Yes
667
10
5
JISDOR
Yes
NA
3,100
NA
30
NA
MYRFIX2
NA
Yes
150
5
Yes
Yes
Yes
Case-bycase basis
Yes
1,188
41,000
17,000
5-10
50
30
0.0001
NA
0.1-0.2
(all tenors)
0.01
0.00002
3M 0.1
SCML
ABSFIX01
NA
10
0.5
0.4
SCSL
2,500
10
0.002
NA
Yes
3,503
30
0.05
NA
Yes
Yes
NA
800
200
NA
5
25
NA
NA
SCFW=
NA
SCFW=
Yes
100
10
0.0002
SCFW=
Yes
300
25
0.25
25
25
50
10
50
2
0.00003
0.0003
0.0001
0.0004
0.0001
SCLB
SCFW=
SCFW=
SCFW=
NA
SCFW=
NA
Yes
Yes
Yes
Yes
Yes
NA
300
1,500
5,000
12,634
4,000
NA
25
25
50
50
50
10
0.00003
NA
0.01000
(1Y)
12M
0.00020
NA
0.00020 1Y
0.0003
0.0001
0.0003
0.0001
SCFW= /
SCLD
NA
SCFW=
SCFW=
SCFW=
NA
SCFW=
NA
NA
NA
NA
NA
NA
NA
NA
NA
50
1
0.0004
SCBG=
50
NA
NA
SCBG=
Yes
50
0.5
NA
NA
NA
NA
NA
NA
Côte d’Ivoire
Yes
30
0.5
NA
NA
NA
NA
Ghana
Kenya
Yes
Yes
40
100
30
150
3
5
0.0050
0.3
SCAF
SCAH
Mauritius
Yes
10
3
NA
SCAI=
NA
NA
NA
NA
SCNL
0.0025
NA
10
10
SCEX
NA
SCAH
SCAI
Bangladesh
Yes
21
0.5
NA
NA
China
Offshore
Renminbi
Hong Kong
India
Yes
34,000
10
0.0007
Yes
6,000
20
NA
Yes
Yes
21,000
15,000
10-20
5
Indonesia
Yes
2,464
2
Malaysia
Mongolia
Yes
Yes
2,600
30-40
5
1
Pakistan
Yes
150
2
Philippines
Singapore
South Korea
Yes
Yes
Yes
2,249
20,000
19,000
1
5
5
Sri Lanka
Yes
35
0.5
0.20-0.30
SCSL
Taiwan
Yes
1,000
1
0.003
Thailand
Yes
2,836
5
0.01
Vietnam
Bahrain
Egypt
Yes
Yes
Yes
800
200
200
1-2
25
5
5
0.00002
0.01
NA
ABSFIX01
or BOT01
NA
SCFW=
NA
Jordan
Yes
200
10
0.0005
Kuwait
Yes
300
25
150
200
750
3,000
7,955
2,500
Botswana
Yes
Yes
Yes
Yes
Yes
Yes
Yes (LHS
only)
Yes
Cameroon
Lebanon
Oman
Qatar
Saudi Arabia
Turkey
UAE
Angola
NA
SCFW=
0.25
1
No two-way
quote
0.0025
0.1
SCAF
SCAH
20
0.5
0.002
SCAG
LHS only
NA
NA
NA
NA
Yes
Case-bycase basis
Case-bycase basis
Yes
yes
Case-bycase basis
NA
Nigeria
Yes
400
0.5
0.1
SCNL
Yes
10
South Africa
Tanzania
Uganda
Zambia
Yes
Yes
Yes
Yes
19,000
10-20
40
80
1.5
0.25
0.5
1
0.004
10
10
20
Yes
NA
Yes
Yes
31,000
NA
50
10
Brazil
Yes
11,000
50
0.0005
Yes
4,000
10
0.0005
NA
Mexico
Yes
57,000
5-20
0.0025
EXOT
NA
SCAH
SCAI
BRL=
STAC
NA
NA
Case
by case
100
NA
2
3
Yes
54,000
20
0.01
NA
Mozambique
NA
Source: Multiple sources, Standard Chartered Research
255
Local Markets Compendium 2014
Appendix 2 – Foreign exchange products
Country
Bangladesh
China
Offshore
Renminbi
Hong Kong
India
Indonesia
Malaysia
Outright forwards
1M bid/ask
Daily
Average
spread in
trading
trade
local
Availability
volume
size
currency
(USD mn) (USD mn)
vs. USD
onshore
Quotes are
Yes
3
2
usually onesided
Yes
28,000
10
NA
NDF
Reuters
ticker
Daily
trading
Availability
volume
(USD mn)
1M bid/ask
spread in
Average
local
trade size
currency
(USD mn)
vs. USD
offshore
Reuters
ticker
NA
NA
NA
NA
NA
NA
SCSHFX
Yes
4,000
NA
0.001
SCSHFX
See CNY
See CNY
Yes
1,000
20
NA
SCBHK08
See CNY
See CNY
See CNY
Yes
Yes
Yes
Yes
7,000
24,000
2,659
400
20-50
10
5
5
0.0003
0.02
10
0.002
SCBHK09
SCBY
JISDOR
MYRFIX2
NA
NA
Yes
NA
NA
NA
500-700
NA
NA
NA
5-10
NA
Mongolia
NA
NA
NA
NA
NA
Yes
Limited
Limited
Pakistan
Yes
25
2
NA
NA
NA
NA
NA
Philippines
Singapore
Yes
Yes
2,396
11,000
1
5
Yes
NA
5-10
NA
0.02
NA
NA
NA
South Korea
Yes
24,000
NA
NA
NA
Yes
900-1,000
NA
3,0004,000
10
1
NA
0.05-0.1 (all
SCPK
tenors)
0.03
SCML
0.0002
ABSFIX01
NA
NA
NA
NA
10
ABSFIX01
NA
NA
On request,
OTC
1-way
On a caseby-case
basis
Yes
Yes
Yes
Yes
NA
20
0.5
0.40
SCSL
NA
NA
NA
NA
NA
1,000
1,107
200
200
NA
1
5
1-2
25
NA
NA
NA
NA
SCFW=
NA
Yes
NA
NA
No
Yes
800-1,000
NA
NA
No
25
5
NA
NA
No
2-3
0.001
NA
NA
No
0.03
NA
NA
NA
No
NA
Jordan
Yes
100
10
SCFW=
NA
NA
NA
NA
NA
Kuwait
Yes
300
25
SCFW=
NA
NA
NA
NA
NA
NA
Yes
Yes
Yes
Yes
Yes
NA
Yes
On a caseby-case
basis
On a caseby-case
basis
Yes
Yes
On a caseby-case
basis
NA
NA
200
750
3,000
3,032
2,500
NA
3
NA
25
25
50
10
50
NA
2
0.005
0.015
15
0.00005
NA
0.01050
(1Y)
12M 0.0002
5
NA
0.00023 1Y
1Y 0.0018
0.0005
0.0007
1Y 0.0005
NA
3M 0.0006
NA
SCFW=
SCFW=
SCFW=
NA
SCFW=
NA
SCBG=
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
Case-bycase basis
NA
NA
NA
NA
NA
NA
NA
NA
Case-bycase basis
NA
NA
NA
NA
30
20
1
1
0.006
0.4
SCAF
SCAH
NA
Yes
NA
NA
NA
5
NA
0.7
NA
SCAH
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
Nigeria
Yes
20
NA
SCNL
Yes
15
5
0.5
South Africa
Tanzania
Uganda
Zambia
Yes
Yes
Yes
Yes
7,000
2-5
5
10
NA
Case by
case
5
0.25
0.5
1
0.003
10
10
20
NA
NA
Yes
NA
NA
NA
NA
NA
NA
NA
0.5
NA
NA
NA
25
NA
Brazil
Yes
34,000
NA
0.0005
Yes
3,000
5
0.0002
Mexico
Yes
14,000
50
0.01
NA
NA
SCAH
SCAI
BRLNDF
OR=STAC
NA
NA
NA
NA
NA
NA
SCNL/
SCAF
NA
NA
SCAH
NA
BRLNDFO
R=STAC
NA
Sri Lanka
Taiwan
Thailand
Vietnam
Bahrain
Egypt
Lebanon
Oman
Qatar
Saudi Arabia
Turkey
UAE
Angola
Botswana
Cameroon
Côte d’Ivoire
Ghana
Kenya
Mauritius
Mozambique
Source: Multiple sources, Standard Chartered Research
256
Local Markets Compendium 2014
Appendix 3 – Rates: Bonds
Instrument
Issuer
Curve span
Common
tenors
BGTBs
Government of
Bangladesh
5Y-20Y
5Y,10Y,15Y
,20Y
Semiannual
Act/365
BDT 1.55.0bn
BDT 100150mn
BDT 200250mn
0 or 1
(primary
auction)
50bps
Local
custodian
China
Government
bonds
Ministry of
Finance
3M-50Y
1Y, 3Y, 5Y,
7Y, 10Y
Annual,
semiannual
Act/Act
CNY 2030bn
CNY 10100mn
CNY 20-30bn
1
1-10bps
CDC/local
custodian
Offshore
Renminbi
China
Government
Bonds
(CGBs)
Ministry of
Finance
2Y-30Y
3Y, 5Y, 7Y,
10Y, 15Y,
30Y
Semiannual
Act/365
CNY 1-5bn
CNY 1050mn
CNY 50200mn
3
3-10bps
CMU, bridge
to Euroclear,
Clearstream
EFN
HKMA (fully
backed by
HKMA's FX
reserves)
2Y-15Y
2Y-15Y
Semiannual
Act/365
HKD
600mn1.2bn
HKD 50200mn
HKD 500mn2bn
0 or 1
(pre-/post
11:00am)
2-3bps
CMU or
custodian
banks
GoI
Securities
Government of
India
1Y-30Y
2Y,5Y,7Y,1
0Y,12Y
Semiannual
30/360
INR 40bn
INR 50100mn
INR 150200bn
1
2-4bps
Local
custodian
T-bonds
Ministry of
Finance
Up to 30Y
5Y, 10Y,
15Y, 20Y,
30Y
Semiannual
Act/Act
IDR 5-10tn
IDR 1030bn
IDR 5-10tn
2
10-40bps
Local
custodian
3Y-20Y
3Y, 5Y, 7Y,
10Y, 15Y
and 20Y
Semiannual
Act/Act
MYR 3.54.5bn
MYR 2050mn
MYR 1-2bn
2
1-2bps
Local
custodian or
Euroclear
Country
Bangladesh
Hong Kong
India
Indonesia
Malaysia
Malaysian
Government of
Government
Malaysia
Securities
Coupon
Day count
frequency
Average
issue size
Average Daily trading Settlement Bid/offer
trade size
volume
period
spread
Custodian
Mongolia
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
Pakistan
PIBs
Government of
Pakistan
3Y to 20Y
3Y, 5Y, 7Y,
10Y
Semiannual
Act/Act
PKR 1-8bn
PKR 50100mn
PKR 200mn
1
5-15bps
Local
custodian
T-bonds
National
Treasury
2Y-30Y
5Y, 15Y,
20Y
Semiannual
30/360
PHP 1015bn
PHP 100200mn
PHP 8-10bn
1 or 2
(primary)
5-10bps
Local
custodian
Up to 30Y
2Y, 5Y, 7Y,
10Y, 15Y
and 20Y
Semiannual
Act/Act
SGD 1.23bn
SGD 510mn
SGD 300700mn
1
1-3bps
MAS, banks
Philippines
Singapore
Singapore
Government of
Government
Singapore
Securities
South Korea
Korea
Treasury
Bonds
Ministry of
Strategy
and Finance
3Y-20Y
3Y, 5Y,
10Y, 20Y
and 30Y
Semiannual
Act/Act
KRW 11.5tn
KRW 10bn
KRW 12.7tn
1
1-2bps
Local
custodian
Sri Lanka
T-bonds
Government of
Sri Lanka
2Y-10Y
3Y, 4Y, 5Y
Semiannual
Act/Act
LKR 1bn
LKR 50100mn
LKR 500mn1bn
2
10bps
Local
custodian
Local
custodian
Taiwan
Central
Government
Bonds
Ministry of
Finance
2Y-30Y
2Y, 5Y,10Y,
20Y, 30Y
Annual
Act/365
TWD 3040bn
TWD
300mn
TWD 15bn
2
0.10.5bps
for onthe-run
3-5bps
for offthe-run
Thailand
Loan Bonds
Ministry of
Finance
3Y-50Y
3Y, 5Y, 7Y,
10Y, 15Y,
20Y
Semiannual
Act/365
THB 520bn
THB 50200mn
THB 5-10bn
2
2-3bps
Local
custodian or
Euroclear
Vietnam
VGBs
Ministry of
Finance
2Y-15Y
2-5Y
Annual
Act/Act
VND 1-3tn
VND 50100bn
VND 150200bn
1
20-50
bps
Local
custodian
Bahrain
Developme
nt bonds
Central Bank
of Bahrain on
behalf of the
kingdom of
Bahrain
3-7Y (BHD) 3-7Y (BHD)
10Y (USD) 10Y (USD)
Semiannual
Act/360
BHD 50200mn
NA
NA
2
80100bps
Central Bank
of Bahrain
Egypt
T-bonds
Ministry of
Finance
(Central Bank
of Egypt as
fiscal agent)
1Y-10Y
2Y, 3Y, 5Y,
7Y, 10Y
Semiannual
Act/Act
1
10bps
Central Bank
of Egypt
Jordan
JOD Bonds
Central Bank
of Jordan
1Y to 5Y
1Y, 2Y, 3Y
Semiannual
Act/365
JOD
100mn
JOD 5mn
NA
2
5bps
Local
custodian
Kuwait
T-bonds
Central bank of
Kuwait
1Y-7Y
1Y-7Y
Semiannual
Act/365
KWD 15100bn
NA
NA
NA
NA
NA
Lebanon
T Bonds
Ministry of
Finance
Semiannual
Act/364
LBP 700bn
LBP 15bn
NA
2
50bps
Banque du
Liban
OMR Bonds
Ministry of
Finance
Semiannual
Act/365
OMR 50mn
OMR 2550mn
Illiquid
2
5bps
Local
custodian
Oman
2Y-5Y
(occasionally 2Y, 3Y, 5Y
7Y)
3Y-5Y
3-5Y
257
EGP 1-4bn EGP 0.5mn EGP 250mn
Local Markets Compendium 2014
Appendix 3 – Rates: Bonds
Country
Qatar
Saudi Arabia
Turkey
UAE
Angola
Instrument
Issuer
Curve span
Common
tenors
Treasury
bonds
Central Bank
of Qatar
3Y-7Y
3Y, 5Y
Semiannual
Act/Act
QAR 3-4bn
NA
NA
NA
NA
NA
Government Saudi Arabian
Developme
Monetary
nt Bonds
Agency
2Y-10Y
NA
Semiannual
30/360
NA
Illiquid
NA
NA
NA
Local
custodian
Government of
Turkey
3Y-10Y
2Y, 3Y, 5Y,
7Y, 10Y
Quarterly/
semiannual
Act/365
TRY 1bn
0 until
14:00, 1
after 14:00
0.5bps
Local
5Y
5Y
Semiannual
30/360
NA
NA
NA
NA
NA
NA
2Y-10Y
2Y-6Y
Semiannual
30/360
NA
NA
NA
NA
NA
Local
custodian
1Y-13Y
NA;
programme
with existing
issues
tapped at
auction
Semiannual
Act/365
BWP
900mn
NA
NA
3
20bps
Local
custodian
Coupon
Dubai
Government of
Government
Dubai
Bonds
Bonds
Government of
Angola
Coupon
Day count
frequency
Average
issue size
Average Daily trading Settlement Bid/offer
trade size
volume
period
spread
TRY 1-3bn TRY 20mn
Custodian
Bonds
Government of
Botswana
Cameroon
Bonds
(OTA)
Government of
Cameroon
through the
central bank
2Y-5Y
2Y
Annual
Act/365
XAF 1550bn
NA
NA
NA
NA
Local
custodian
(Cellule de
Règlement et
de
Conservation
des Titres)
Côte d’Ivoire
Bonds
Government of
Cote d'Ivoire
3Y-7Y
3Y-5Y
Annual
Act/Act
XOF 2560bn
NA
NA
NA
NA
BCEAO
Ghana
T-bonds
Government of
Ghana
3Y-7Y
3Y-7Y
Semiannual
Act/364
GHS
300mn
GHS 5mn
GHS 5mn
2
50bps
Local
custodian
Kenya
T-bonds
National
Treasury
2Y-30Y
2Y, 5Y, 7Y,
10Y, 15Y,
20Y
Semiannual
Act/365
KES 1820bn
(across 2
tenors)
KES
100mn
NA
3
50bps
Local
custodian
5Y
5Y
Semiannual
Act/365
NA
NA
NA
2
3Y-10Y
3Y-5Y
NA
NA
NA
NA
NA
NA
NA
Local
custodian
2Y-20Y
3Y, 5Y, 7Y,
10Y, 20Y
Semiannual
Act/Act
NGN 5090bn per
tranche
NGN
100mn
NGN 37bn
2
8-12bp
(3Y and
below), 36bp
(>3Y)
Local
custodian
Botswana
Mauritius
Mozambique
Nigeria
5Y
Government Government of
of Mauritius
Mauritius
Bonds
T-Bonds
Government of
Mozambique
Government of
FGN bonds
Nigeria
Securities
50account with
100bps in
banks/
yield
brokers
South Africa
SAGBs
National
Treasury
1Y-30Y
2Y, 5Y, 10Y
Semiannual
Act/365
ZAR 8001,100mn
NA
NA
3
2-4bps
Local
custodian or
Euroclear
Tanzania
BGTBs
Government of
Tanzania
2Y-10Y
2Y, 5Y,7Y,
10Y
Semiannual
Act/365
TZS 50bn
NA
NA
Flexible
50bps
Local
custodian
Uganda
T-bonds
Ministry of
Finance
2Y-15Y
2Y, 3Y
Semiannual
Act/364
UGX 90140bn
UGX 2-5bn
UGX 2-4bn
0
50bps
Local
custodian
Zambia
T-bonds
Ministry of
Finance
2Y-15Y
2Y-5Y
Semiannual
Act/365
ZMK
700mn
ZMK 10mn
ZMK 1015mn
3
100bps
Local
custodian
Brazil
Fixed-rate
bonds
(NTN-Fs)
National
Treasury
4Y-10Y
4Y, 6Y, 8Y,
9Y and 10Y
Semiannual
BRL 20mn
NA
1
2-4bps
Settles only
locally in
Brazil
Mexico
MBONOS
National
Treasury
3Y-30Y
3Y, 5Y,
10Y, 20Y,
30Y
Semiannual
MXN 50100mn
MXN 11.5bn
3 or 4
3-5bps
Euroclear
Exponential
business/ BRL 40bn
252
Act/360
Source: Multiple sources, Standard Chartered Research
258
NA
Local Markets Compendium 2014
Appendix 4 – Rates: Swaps
Average
bid/offer
spread
Common
tenors
Coupon
frequency
Fixing
(floating-rate)
Market
conventions
(fixed/LCY leg)
NDIRS
1-5bps
Up to 5Y
Quarterly
7D repo / 3M
SHIBOR
Act/365
Act/365
1
Offshore
Renminbi
CCS
2-7bps
Up to 7Y
Quarterly
3M US LIBOR
Act/360
Act/360
2
Hong Kong
IRS
1-3bps
Up to 10Y
Quarterly
3M HIBOR
Act/365
Act/365
0
India
IRS
3-5bps
Up to 5Y
Semi-annual
O/N NSE MIBOR
Act/365
Act/365
1
Indonesia
IRS
50-70bps
Illiquid
Quarterly
3M JIBOR
Act/360
Act/360
2
Malaysia
IRS
2-5bps
Up to 5Y
Quarterly
3M KLIBOR
Act/365
Act/365
0
Mongolia
Not available
Pakistan
Not available
Country
Main product
Bangladesh
Not available
China
Market
conventions
Settlement
(floating/FCY leg)
Philippines
IRS
30-40bps
Up to 5Y
Quarterly
3M PHIREF
Act/360
Act/360
1
Singapore
IRS
3-15bps
Up to 10Y
Semi-annual
6M SOR
Act/365
Act/365
1
IRS
2bps
Up to 10Y
Quarterly
3M CD
Act/365
Act/365
1
1-3bps
Up to 5Y
Quarterly
3M, Secondary
CP fixing
Act/365
Act/365
2
South Korea
Sri Lanka
Not available
Taiwan
IRS
Thailand
IRS
2-3bps
Up to 5Y
Semi-annual
6M THBFIX
Act/365
Act/365
2
Vietnam
IRS
Not liquid
Illiquid
Quarterly
3M VNIBOR1
Act/360
Act/360
1
Bahrain
IRS
50bps
Up to 2Y
Annual fixed vs.
3M floating
3M BHIBOR
Act/360
Act/360
2
Egypt
Not available
Jordan
CCS
50bps
Up to 3Y
Quarterly
USD LIBOR
fixed JOD
Act/365
Act/360
2
Kuwait
CCS
15bps
Up to 2Y
Quarterly
3M USD LIBOR
Act/365
Act/360
2
Lebanon
Not available
Oman
CCS
15bps
Up to 2Y
Annual fixed vs.
3M LIBOR
28D CD, USD
3M LIBOR
Act/360
Act/360
2
Qatar
CCS
10bps
Up to 3Y
Annual fixed vs.
3M LIBOR
USD 3M LIBOR
Act/360
Act/360
2
Saudi Arabia
IRS
3-5bps
Up to 7Y
Annual fixed vs.
3M floating
3M SAIBOR
Act/360
Act/360
2
Turkey
CCS
5bps
Up to 5Y
Annual fixed vs.
3M floating
3M USD LIBOR
Act/360
Act/360
2
UAE
IRS
5-7bps
Up to 7Y
Annual fixed vs.
3M floating
3M EIBOR
Act/360
Act/360
2
Not
available
Illiquid
Quarterly
3M USD LIBOR
Act/365
Act/360
2
CCS
150bps
Illiquid
Quarterly
3M US
LIBOR/3M or 6M
T-bill
Act/365
Act/360
2
CCS
150bps
Illiquid
Quarterly
As applicable
Act/365
Act/360
2
Angola
Not available
Botswana
CCS
Cameroon
Not available
Côte d’Ivoire
Not available
Ghana
Kenya
Mauritius
Not available
Mozambique
Not available
Nigeria
CCS/IRS
150bps
Illiquid
Quarterly
As applicable
Act/360
Act/365
2
South Africa
IRS
3-5bps
Up to 10Y
Quarterly
3M JIBAR
Act/365
Act/365
0
Tanzania
CCS
150bps
Illiquid
Quarterly
As applicable
Act/365
Act/360
2
Uganda
CCS
150bps
Illiquid
Quarterly
As applicable
Act/365
Act/360
2
Zambia
CCS
150bps
Illiquid
Quarterly
As applicable
Act/365
Act/360
2
Exponential
business/252
Exponential
business/252
1
Act/360
No accrual
1
Brazil
IRS
1-7bps
Up to 7Y
Zero coupon
Brazil Cetip
interbank deposit
rate
Mexico
IRS
3-5bps
Up to 10Y
28 days
Interbank interest
rate average
Source: Multiple sources, Standard Chartered Research
259
Local Markets Compendium 2014
Appendix 5 – Size of domestic investor base
Insurance
Country
Bangladesh
Total assets
(USD mn)
Pension funds
Density
Total assets
(USD mn)
Mutual funds
Per capita
Total assets
(USD mn)
Banks
Per capita
Fixed
income %
Total assets
(USD mn)
Loan/
deposit
ratio
–
–
–
–
–
–
–
8,128
–
952,138
694
177,372
129
437,449
319
18.52%
23,631,676
67
13,933
1,935
79,640
11,061
1,237,624
171,892
17.50%
1,987,348
72
306,513
245
74,760
60
114,489
92
48.43%
1,210,127
76
Indonesia
57,719
243
16,354
69
21,532
91
17.54%
409,090
88
Malaysia
54,647
1,897
185,369
6,436
96,293
3,344
16.79%
594,093
80
Mongolia
–
–
–
–
–
–
–
–
–
Pakistan
6,053
34
20
0
3,159
18
25.90%
143,941
56
Philippines
14,639
151
9,456
97
3,566
37
49.97%
185,975
71
Singapore
142,872
28,574
190,165
38,033
1,328,540
265,708
11.50%
754,256
99
South Korea
655,087
13,102
367,028
7,341
267,582
5,352
16.22%
1,154,778
96
1,180
56
7,761
366
–
–
–
29
57
506,488
21,738
50,397
2,163
59,192
2,540
15.33%
1,172,526
64
Thailand
47,000
682
18,860
274
72,546
1,053
24.05%
499,953
95
Vietnam
0
0
3,453
38
137
2
0.00%
255,945
87
Bahrain
500
357
–
–
840
600
25.36%
219,937
53
China
Hong Kong
India
Sri Lanka
Taiwan
Egypt
6,251
75
4,022
48
11,263
134
2.22%
222,231
112
Jordan
576
90
–
–
9
1
–
57,951
65
Kuwait
450
155
–
–
5,387
1,858
4.43%
172,407
90
1,100
256
–
–
676
157
67.65%
143,089
38
Oman
600
207
–
–
500
173
–
35,430
101
Qatar
850
447
–
–
75
42
–
123,626
98
10,361
369
–
–
24,130
841
62.58%
692,477
82
Turkey
5,556
75
8,569
115
16,478
221
31.69%
776,300
110
UAE
5,100
1,041
–
–
989
202
31.19%
67,860
100
Angola
–
–
–
–
–
–
–
62,620
88
Botswana
–
–
–
–
2
1
–
–
–
Cameroon
–
–
–
–
–
–
–
20
74
Côte d’Ivoire
–
–
–
–
–
–
–
8,432
71
Ghana
–
–
2,088
86
–
–
–
13,193
66
Kenya
2,769
65
1,163
28
–
–
–
19,022
79
Mauritius
–
–
–
–
–
–
17.18%
–
–
Mozambique
–
–
–
–
–
–
–
5,936
73
850
5
15,435
92
–
–
–
119,532
52
242,236
4,768
179,014
3,524
145,150
2,857
15.6%
376,883
82
Tanzania
–
–
–
–
–
–
–
–
–
Uganda
–
–
1,022
31
–
–
–
3,710
72
Zambia
225
19
–
–
–
–
–
6,556
64
Brazil
36,058
183
308,240
1,552
1,070,998
5,393
55.91%
2,756,616
90
Mexico
12,136
106
160,569
1,381
112,201
965
34.90%
293,229
92
Lebanon
Saudi Arabia
Nigeria
South Africa
Source: Multiple sources, Standard Chartered Research
260
Local Markets Compendium 2014
Appendix 6 – Global bond market indices
Region/country
JP Morgan GBI-EM Global
Diversified (GBI-EM GD)
Citigroup World Government
Bond Index (WGBI)
HSBC
Asian Local Bond Index (ALBI)
Weight (est.), %
Weight (est.), %
Weight, %
0.28
10.37
Asia
Indonesia
7.9
Malaysia
10.0
Philippines
0.5
9.99
6.29
Singapore
0.40
14.91
India
5.49
China Offshore
3.74
China Onshore
7.95
Hong Kong
12.68
Korea
18.73
Taiwan
Thailand
2.14
7.6
7.71
Eastern Europe
Hungary*
5.7
Poland*
10.0
Romania*
1.3
Russia*
10.0
Turkey
9.3
0.49
Latin America
Brazil
10.0
Chile*
0.2
Colombia*
3.7
Mexico
10.0
Peru*
1.7
0.62
Sub-Saharan Africa
Nigeria
2.0
South Africa
10.0
0.33
Developed markets
Australia*
0.95
Austria*
1.09
Belgium*
1.72
Canada*
1.58
Denmark*
0.52
Finland*
0.41
France*
6.25
Germany*
5.38
Ireland*
0.50
Italy*
6.04
Japan*
27.89
Netherlands*
1.68
Norway*
0.20
Spain*
3.20
Sweden*
0.34
Switzerland*
0.20
UK*
7.13
US*
32.80
* Countries that are not included in Local Markets Compendium 2014; Source: Reuters, Bloomberg, HSBC Research, Standard Chartered Research
261
Local Markets Compendium 2014
Appendix 7 – Global government debt treemap
The treemap below shows the size of total government debt outstanding across 161 countries worldwide. Each small rectangle
shows the size of each bond market, and the larger rectangle shows the size of the regional bond market; the larger the
country/region, the further it is towards the bottom left. The colour of each square shows the debt/GDP ratio for that country.
We show data here for 2002 and 2012, based on the IMF World Economic Outlook (April 2013) database, using total
government debt figures across all currencies. The size of the global bond market is proportional between 2002 and 2012 using
2012 USD. In 2002, the world government bond market was USD 22.98tn in size; as of end-2012, it had reached USD 57.9tn.
Despite the growth in Asia ex-Japan (2.5ppt increase in share of total government debt between 2002 and 2012, the highest of
any region), its debt/GDP ratios remain lower, reflecting the region’s economic growth.
Total government debt outstanding
ANZ+Japan
Other Europe
Sub-Saharan Africa
United
Kingdom
Japan
TR
RU
SA
SE
ID
IL EG
LatAm
TW PK PH
North America
USD tn USD tn
LB
DZ
DK NO
TH MY
SG HK
IN
AR
CO VE
BR
MX
KR
Euro
GR
PT FI IE
AT
France
Spain
Canada
United States
BE
NL
Germany
2002
% of
total
2012
% of
total
North America
6.71
18.32
29.22
31.64
Asia ex-JP, AU, NZ
1.46
5.11
6.33
8.83
Euro area
4.70
11.29
20.46
19.50
Europe ex-euro area
1.45
4.01
6.30
6.92
JP, AU, NZ
6.61
14.67
28.76
25.34
Latin America
1.08
2.91
4.72
5.03
MENA
0.73
1.12
3.18
1.93
0.47
1.02
0.80
Sub-Saharan Africa
0.23
Total
Italy
22.98
57.90 100.00 100.00
Debt/GDP (%)
<10
2012
2012
MENA
AXJ
CN
2002
ZANG
Switzerland PL
ANZ+Japan
10-23 23-36 36-50 50-67 67-84 84-100 >100
Other Europe
NZ
Sub-Saharan Africa
ZA
CZ
SE
RU
GB
SDNG
MENA
HU UA RO
NO
MA
IR LB
EG
DK
TR
Australia
CH
Japan
Venezuela
AXJ
MY
TW
BD
PH LK
TH
PE
CO
VN
HK
ID
N. America
IL
LatAm
PL
India
QA
AE
2002
Mexico
AR
PK
Brazil
China
South
Korea
SG
Euro
Spain
Germany
Source: IMF WEO (April 2013), Standard Chartered Research
262
Italy
FI
Greece
United States
Ireland
Belgium
Canada
France
Portugal
Netherlands
Austria
Local Markets Compendium 2014
Appendix 8 – Global indicator maps
Figure 1: Percentage of general government debt held by foreign investors (%)
N.A.
<20
20 to 40
40 to 60
>60
Source: OECD, national sources, Standard Chartered Research
Figure 2: General government debt as % of GDP (2012)
N.A.
<20
20 to 40
Source: IMF WEO (April 2013), Standard Chartered Research
263
40 to 60
60 to 80
80 to 100
>100
Local Markets Compendium 2014
Appendix 8 – Global indicator maps
Figure 3: NBFI assets as % of GDP
N.A.
<2
2 to 5
5 to 10
10 to 50
50 to 100
>100
10 to 50
50 to 80
80 to 100
100 to 200
>200
Source: National sources, SwissRe, IMF, Towers Watson, ICI, BIS, Standard Chartered Research
Figure 4: Bank assets as % of GDP
N.A.
<10
Source: National sources, IMF, Fitch, Standard Chartered Research
264
Local Markets Compendium 2014
Appendix 8 – Global indicator maps
Figure 5: Nominal yield* (%)
N.A.
<2
2 to 4
4 to 6
6 to 10
>10
*Nominal yields refer to the sub-index yields from the iBoxx ABF, iBoxx GEMX and EFFA indices. For countries not in these indices, we use the yield of their key benchmark tenor.
Source: Reuters, Bloomberg, Standard Chartered Research
Figure 6: Real yield* (%)
N.A.
<-1
-1 to 0
*Real yield is calculated from the nominal yield minus average y/y CPI inflation over the last year.
Source: Reuters, Bloomberg, Standard Chartered Research
265
0 to 1
1 to 2
2 to 4
4 to 10
>10
Local Markets Compendium 2014
Appendix 8 – Global indicator maps
Figure 7: Current nominal effective exchange rate (NEER) relative to 5-year historical average* (%)
N.A.
<-10
-10 to -5
-5 to 0
0 to 5
5 to 10
>10
*5-year historical average calculated from September 2008 to August 2013
Source: BIS, Standard Chartered Research
Figure 8: Current real effective exchange rate (REER) relative to 5-year historical average* (%)
N.A.
<-10
*5-year historical average calculated from September 2008 to August 2013
Source: BIS, Standard Chartered Research
266
-10 to -5
-5 to 0
0 to 5
5 to 10
>10
Local Markets Compendium 2014
Contributors’ contact details
Anubhuti Sahay, +91 22 6115 8840
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Lawrence Lai, +65 6596 8261
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Becky Liu, +852 3983 8563
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Michael Trounce, +44 20 7885 2058
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Betty Rui Wang, +852 3983 8564
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Mike Moran, +1 212 667 0694
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Edward Lee, +65 6596 8252
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Sayem Ali, +92 21 3245 7839
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Lan Shen, +86 21 6168 5019
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Will Oswald, +65 6596 8258
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270