HONG KONG - Bank of China (Hong Kong), in the capacity of the clearing bank for the banking business in the Chinese currency in Hong Kong, said Thursday in a statement that it will launch the Renminbi fiduciary account scheme for participating banks on April 8.

Under the scheme, participating banks in Hong Kong, which wish to open a Renminbi fiduciary account with Bank of China (Hong Kong), should sign an account opening form for Renminbi fiduciary account. Upon completion of the account opening procedures, participating banks can transfer Renminbi funds via the clearing bank to its accounts maintained with the People's Bank of China (PBOC), the central bank, said the statement.

The participating banks account with the PBOC is opened by the clearing bank -- Bank of China (Hong Kong) -- on behalf of the participating banks, and the assets held in the account will not be included in the balance sheet of Bank of China (Hong Kong).

According to the statement, this scheme can effectively reduce the participating banks' counter-party risk exposure to the clearing bank in the Renminbi funds deposit, and also help to promote the long-term development of Renminbi business in Hong Kong.

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In response, the Hong Kong Monetary Authority welcomed the launch of the Renminbi fiduciary account service, hailing the move as a new arrangement to facilitate participating banks to better manage their credit exposure to the clearing bank for Renminbi business in Hong Kong.

In November last year, the Hong Kong Association of Banks raised the issue of credit limit against the background of an increasing amount of Renminbi deposits being placed by participating banks with the clearing bank as Renminbi business in Hong Kong continued to expand, said the authority in a statement.

The Hong Kong Monetary Authority discussed with the PBOC and it was considered that the issue could be resolved by providing an option for participating banks to place Renminbi funds through the clearing bank under a custody arrangement for onward depositing with the PBOC, it said.

"The launch of the Renminbi fiduciary account service provides the solution to address the issue of credit limit faced by participating banks relating to the Renminbi funds placed with the clearing bank. It is a useful enhancement necessary to support the continuous expansion of Renminbi business in Hong Kong," the Hong Kong Monetary Authority said in the statement.

The Hong Kong Monetary Authority said it is also issuing a circular to authorized institutions in the day on the prudential treatment of balances maintained in the Renminbi fiduciary account.

Bank of China (Hong Kong) was appointed as the sole clearing bank of RMB banking business in Hong Kong by PBOC on December 24, 2003.

Bank of China (Hong Kong), is one of the three note issuing banks in Hong Kong. The other two are HSBC Hong Kong and Standard Chartered Bank Hong Kong.