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     -  FX Interest Rate Swap
     -  Forward FX Interest Rate Swap
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     -  FX Interest Rate Swap under Remittance Payment Link
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  Home Page > Corporate Banking >Financial market >Corporate Risk Management >RMB Interest Rate Swap
RMB Interest Rate Swap
 

I. Description
RMB interest rate swap is a financial contract between ICBC and the customer, agreeing to calculate the interest according to the specified RMB principal and interest rate and exchange the interest in a certain period in the future. Generally, the interest rate swap involves the exchange of fixed interest rate and floating interest rate or floating interest rates. Currently, the floating interest rates include loan prime rate (LPR), RMB time deposit and loan rate (1 year), Shibor (overnight, 3 months) and interbank 7-day fixing repo rate (FR007).

II. Target Customers
It is targeted at financial institutions with relevant demand and non-financial institutions for the purpose of hedging.

III. Functions
RMB interest rate swap is an underlying interest rate derivative, with clear and simple structure and flexible elements. The customer can use it to match the terms of assets and liabilities and manage the basis risk between fixed interest rate and floating interest rate; hedge against interest rate risk and secure cheaper debt; increase the returns through the portfolio of underlying product and interest rate swap by seizing the arbitrage opportunity in the financial market.

IV. Features and Advantages
1. Competitive prices: As the market maker of RMB interest rate swap, ICBC has professional and experienced teams for trading, product design and quantitative analysis, flexible pricing mechanism and powerful competitive edges, thus providing favorable prices.
2. Tailored product design: Flexible design of product term and structure based on the market condition to satisfy the customer's diversified demand for lower financing cost or higher return.
3. Constant dynamic management: Regular evaluation report and follow-up dynamic management service based on the market movement and customer demand.

V. Price
ICBC offers prices to the customer according to the price trend on RMB interest rate swap market and updates the quotation in line with the market changes.

VI. Service Channels and Hours
Qualified corporate customers can apply for this product in the banking service time at the sub-branch or branch with this product.

VII. Application Procedures
1. Customer evaluation: ICBC performs the due diligence, credit rating and credit review and fills in the Customer Evaluation Form.
2. General agreement signing: After passing the evaluation by ICBC, the customer signs the Agreement on the Risk Management on Behalf of Customers by Industrial and Commercial Bank of China.
3. Application: The customer submits the Service Request Form to ICBC and ICBC presents the Customer Confirmation letter, making a statement on the risk involved according to transaction term, indicators, cash flow analysis, market value and influence, potential loss in market value. The customer shall confirm the risk prompts in writing.
4. Confirmation: The branch submits the service request to the Head Office. After the Head Office confirms to close the transaction, the branch issues the Transaction Confirmation Letter to the customer as the official transaction voucher.

VIII. Special Point
Currently, the minimum nominal principal is RMB5 million with the minimum increase unit of RMB100,000. The transaction term shall be no less than three months and no more than 10 years.

IX. Risk Prompt
The customers may gain or lose from the interest rate fluctuations. The customer may suffer loss when terminating the transaction that appears to lose. The floating gain or loss, however, will not affect the effectiveness of management if the underlying assets for the swap and arbitrage fully match.

X. Typical Cases
Case 1: In September 2014, an ICBC branch in cooperation with the Head Office, entered a one-year RMB interest rate swap contract with a high-quality customer, exchanging the fixed loan rate for the floating rate linked with one-year benchmark loan rate, delivered once every quarter. On November 21, 2014, the PBOC cut the one-year benchmark loan rate by 40bps. As a result, the customer enjoyed the lower financing cost and was satisfied with ICBC's services.
Case 2: In January 2015, an ICBC branch in cooperation with the Head Office, entered a one-year RMB interest rate swap contract with a high-quality customer, exchanging the floating loan rate linked with one-year loan prime rate (LPR) for the fixed loan rate, delivered once every quarter. ICBC offered a price of 5.46% for this interest rate swap, that is, the customer exchanged the floating loan rate for the fixed interest rate of 5.46%, thus saving 5bps compared with the original strike rate of 5.51% for the initial term. As a result, the customer cut down the financial cost and was satisfied with ICBC's services.

Note: The contents on this page are for reference only. The ultimate power of interpretation is under the Industrial and Commercial Bank of China Limited. For part of the contents, notice and specific regulations of local branches shall prevail.


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