Chinese banks warned of foreign exchange risks

Chinese banking authorities have warned domestic commercial banks to take precautions against rising risks of imbalance between foreign exchange receipts and payments.

Overseas claims by Chinese banks totalled 4 trillion yuan (about 634.92 billion U.S. dollars), China Securities News said on Tuesday.

At the end of June this year, the central parity rates of the Renminbi (RMB) against the Euro strengthened 5 percent, said the report, posing imbalance risks for commercial banks on their foreign exchange assets.

This has triggered China Banking Regulatory Commission (CBRC), the country's top banking regulator, to issue an alert on foreign exchange safety, the report said.

CBRC data shows that the accumulative foreign exchange exposure of bank accounts was 5.2 percent of the sector's total asset at the end of the second quarter. That is 1 percentage point higher than that of the first quarter but slightly lower than the average level of 2011.

Foreign exchange exposure represents the risk of loss caused by adverse rate movements in other countries, analysts said.

The risks for banks are climbing as analysts expressed increasing devaluation expectations of the RMB.

The RMB, or yuan, strengthened by 60 basis points to 6.3418 against the U.S. dollar on Tuesday, according to the China Foreign Exchange Trading System.

As a result, the CBRC is urging Chinese banks to be prudent in foreign exchange business. Moreover, the banking authorities are formulating a guide for financial asset management companies in purchasing non-performing asset.