Investors are increasingly converting their deposits to Chinese renmibi, seeking yields in a cheap money market. This is good news for global banks here, but for financial authorities, it is a budding concern.

The Financial Supervisory Service recently started an overall assessment on the renmibi deposit market, expressing concerns on the overvaluation of the Chinese currency.

“So far, we have detected no apparent problems in the soundness of renmibi deposits or trade,” said an FSS official.

“But the drastic rush of the Chinese currency may upset the market balance, if not properly supervised, so we are keeping a close eye on the flow of funds.”

It is not just the currency itself, but the fast-changing market trends that worry the supervisors, according to the official.

The Bank of Korea recently said renmibi deposits in the country stood at 20 billion won ($18.9 million) as of the end of August, up 3.8 billion won from the previous month.

The proportion of renmibi among foreign currency deposits also soared to 25.9 percent in July, almost doubling from 13.7 percent at the end of last year.

The growth of the renmibi market has been conspicuous since President Park Geun-hye and her Chinese counterpart Xi Jinping agreed during their July summit to open a direct won-renmibi market in the near future.

The Financial Services Commission chairman Shin Je-yoon said in April that Korea should make efforts to become an offshore renmibi hub.

To foreign-based banks such as HSBC Korea or Standard Chartered Korea, the rise of the Chinese currency is an opportunity to enhance their global competitiveness in the South Korean financial market.

“We believe that Korea can become one of the most successful renmibi centers in Asia and throughout the world,” said Martin Tricaud, president and CEO for HSBC Korea.

Ajay Kanwal, president and CEO of Standard Chartered Korea, likewise said the renmibi business should be a top priority business for SC Korea.

The development of the renmibi market is expected to act as an advantage to both banks, which have been struggling but still hold an upper hand in foreign currency businesses.

Last year, HSBC shuttered their retail finance operation along with 10 of its 11 offices, pledging to focus on corporate finance. SC is also planning to close some 50 offices by year-end.

By Bae Hyun-jung (tellme@heraldcorp.com)