Foreign Exchange News
- Banks seek more hedging tools
Date: 17-Jan-2007 Sources: (Shenzhen Daily)
MAJOR Chinese banks are asking for more hedging instruments to allow them to deal with potential foreign exchange losses as the yuan appreciates, Xinhua said Monday.
'Chinese commercial banks need more derivative instruments to hedge against foreign exchange losses,' said Wen Bin, a senior strategic analyst at the Bank of China (BOC), according to the Xinhua report.
Foreign currency exposure is concentrated in China's largest banks: Industrial and Commercial Bank of China, China Construction Bank, Bank of China and Bank of Communications, Wen said.
The four banks had a total exposure of US$80 billion, he said.
'With option transactions incapable of guarding against exchange losses, at the moment Chinese banks can only rely on swap and forward transactions,' China Construction Bank president Guo Shuqing said.
Guo called on banking regulators and the central bank to relax restrictions on hedging, giving Chinese banks more leeway to hedge their foreign currency exposure.
The Bank of China, the country's largest foreign exchange bank, suffered exchange losses of 3.5 billion yuan (US$438 million) in the first half of last year, while China Construction Bank had losses of 2.4 billion yuan, according to Xinhua.
However, the Bank of China's net foreign currency exposure is too small to pose a substantial threat to the bank, the bank's vice president Zhu Min said.
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