DBS Bank (China) has been granted approval to open a sub-branch in Shanghai's pilot free trade zone. DBS said on Monday that it is one of only two foreign banks approved by Chinese regulators to operate in the area.
DBS China chief executive Neil Ge added: "We will start focusing on servicing corporate clients in the (free trade zone) at its first stage, which will complement our work in Shanghai.
"We have set up special task forces led by senior bankers to study new products and services that we can pilot in the context of interest rate liberalisation and (yuan) capital account convertibility."
DBS China has nine outlets in Shanghai. The free trade zone, which will focus on the service industry, will ease controls on 18 sectors such as finance and shipping.
Mr Tan Teck Long, managing director and head of institutional banking at DBS China, said cash management, the debt capital market and treasury are particular areas of opportunity.
"As the (yuan) is currently not freely convertible, there are limited cash management solutions that companies can tap on," he noted. "With capital account liberalisation, companies will enjoy greater cost savings when they are allowed to set up cash pooling different currencies in the free trade zone.
Mr Ge added that with the lifting of investment restrictions, more Singapore firms and investors will be attracted to set up in the zone, creating opportunities for the bank. However, the Financial Times has said that "the tepid reaction of foreign banks so far reflects widespread confusion about how the zone will operate, even as regulators have appealed for patience".
OCBC Bank economist Tommy Xie said Singapore will face competition for business in the zone, noting that the London Metal Exchange is "likely to be allowed to establish future delivery warehouses (there)".
He said this will reduce the transaction costs for Chinese commodity buyers as they now have to receive the metals from locations such as Singapore and Busan. This is likely to challenge the commodity business in Singapore. The zone could also speed up Shanghai's efforts to become an international shipping centre.
He said: "Hong Kong is likely to face long-term competition from Shanghai as a financial, trading and shipping hub. However, we think the impact on Singapore also cannot be ignored."
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