Friday, September 26, 2008

China Banks Cut Currency Trading With Foreign Lenders

  • Sept. 26
  • (Bloomberg)

China's banks are limiting foreign- exchange transactions with U.S. and European financial companies on concern tighter global credit markets will cause more failures.

Domestic banks are cutting trading with international firms in the interbank market, according to Zhuang Zhiqiang, a trader at Xiamen International Bank Co., which is partially owned by the Asian Development Bank. The move aims to control risks after the bankruptcy of Lehman Brothers Holdings Inc. stunned domestic investors, said Zhao Qingming, an analyst in Beijing at China Construction Bank Corp., the nation's second-largest lender.

``We've turned more cautious,'' said Zhuang, who is based in the southern Chinese city of Xiamen. ``Bank officials are worried about settlement risks as the ongoing crisis has weakened people's trust in U.S. banks.''

Washington Mutual Inc. today became the biggest U.S. lender to collapse and the nation's lawmakers have yet to agree on a plan to end the credit crisis. A Treasury proposal to buy $700 billion of troubled assets from financial companies using taxpayers' funds has been countered by a suggestion that holders of mortgage-related securities pay premiums into a fund that would insure their holdings.

Bank of China Ltd., the nation's biggest currency trader, has tightened control of foreign exchange trading with overseas banks, said a person at the bank, who asked not to be identified. Wang Zhaowen, Bank of China's Beijing-based spokesman, declined to comment today.

Risk Controls

Chinese banks, which mostly operate in the domestic market, have escaped the worst of the $522 billion of losses and writedowns on securities tied to U.S. home loans, assets for which there are few takers amid a housing recession. Bank of China is the country's worst hit, with $3.1 billion. Citigroup Inc. has the highest tally among U.S. lenders with $55.1 billion.

Banks should be more ``sensitive'' to risks on the global financial markets and improve controls amid the current turmoil, Liu Mingkang, chairman of the China Banking Regulatory Commission, said in a speech posted on the top banking regulator's Web site yesterday.

The regulator hasn't responded to a fax sent by Bloomberg to request for comment on the reduction in trading with foreign lenders.

``It's something quite normal,'' said Zhao. ``Not only Chinese banks, but banks in other countries should consider potential risks at this time.'