Lenders face 20b yuan forex hit
The mainland's major lenders - including the biggest three - will suffer foreign exchange losses of more than 20 billion yuan (HK$22.22 billion) this year due to a rising yuan and a lack of hedging tools, a report said.
Industrial and Commercial Bank of China, Bank of China and China Construction Bank and other commercial banks had net foreign exchange totalling about US$40 billion last year, the 21st Century Business Herald said in the report.
In the absence of currency hedging tools, a conservative estimate of a 7.5 per cent rise in the yuan would cost them more than 20 billion yuan in terms of foreign exchange losses this year, the mainland newspaper said.
Mainland banks usually find it difficult to hedge against currency risk due to the lack of futures for the yuan. The market for swaps and forwards also is underdeveloped.
Bank of China, the country's biggest foreign exchange lender, had US$4.1 billion net foreign exchange exposure at the end of last year, while Industrial Commercial Bank of China, the country's biggest lender by market value, had net exposure of US$18.85 billion at that time.
China Construction Bank has yet to release its annual results for last year, but the country's biggest property lender was sitting on US$5.49 billion at the end of September last year.
'We do not have a clear picture on Chinese banks' hedging strategies and the available vehicles and costs,' HSBC said in a recent research report.
Meanwhile, a senior mainland economist has called on Beijing to be 'cautious and well prepared' for the impact of the US subprime mortgage crisis on the economy.
'No one knows when this crisis will really end and therefore as a major trading partner of the US we should be vigilant. We should take the necessary measures to protect our own interests while minimising subprime losses,' said Yu Yongding, director of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences.
