Banks urged to improve forex risk controls
Updated: 2006-03-06 16:34
China's banks must improve their management of currency risks to take account
of new challenges created by a more flexible yuan and the development of the
interbank foreign exchange market, the banking regulator said on Monday.
Banks would have to better calculate their open positions and improve their
evaluation of counterparty credit risk, the China Banking Regulatory Commission
said on its Web site (www.cbrc.gov.cn).
In a recent circular, the agency also demanded that banks improve internal
audits of foreign exchange risks and do a better job at managing risks arising
from derivative products.
They should also hire more and better-trained traders and risk managers, the
"Effective management of foreign exchange risks by banks is necessary not
only for the banks' own safety and stable operations, but also for for the
smooth implementation of the yuan exchange rate mechanism and the healthy
development of the interbank foreign exchange market," said Huang Yi, director
of the regulator's policy and regulation department.
The notice underlines China's concern that a more flexible yuan could create
new challenges for its shaky banking system.
Beijing has consistently argued that it needs to proceed carefully in freeing
up the the yuan because the country's fragile banks, which are relatively
inexperienced at pricing risk, could not withstand the shock of rapid movements.
China last July revalued the yuan by 2.1 percent against the dollar and
shifted to a managed float. The yuan has risen another 0.9 percent versus the
dollar since then.