Banks say they're forced to cover China forex regulator's tracks

The yuan lost more than 6 per cent against the US dollar last year and is at eight-year lows, prompting a flurry of restrictive measures on capital outflows from the State Administration of Foreign Exchange.
The yuan lost more than 6 per cent against the US dollar last year and is at eight-year lows, prompting a flurry of restrictive measures on capital outflows from the State Administration of Foreign Exchange.PHOTO: AFP

SHANGHAI • China's forex regulator is telling banks to keep its instructions about curbing capital outflows secret and to ensure that research analysts keep any negative views about the yuan's prospects to themselves, bankers from local and foreign banks said.

Both demands are seen as an attempt by the authorities to prevent alarm that could trigger further declines in the yuan.

The yuan lost more than 6 per cent against the US dollar last year and is at eight-year lows, prompting a flurry of restrictive measures on capital outflows from the State Administration of Foreign Exchange (Safe), including setting limits on banks' currency volumes in some cities or provinces and requiring approval for ever-smaller transactions.

Safe, which is part of the People's Bank of China (PBOC), is insisting in oral instructions to dozens of banks that they do not reveal its role in such restrictions, six bankers said, which was damaging their relationships with clients.

Safe and the PBOC have yet to respond to requests for comment.

Safe's reticence began at least as far back as last August, when its Shanghai branch called at least 20 major foreign and domestic banks operating in the city to a meeting with the regional heads of several Safe departments.

A representative from an international bank said there were no written instructions but a high-ranking official told them explicitly what was expected of them: "You must control your forex deficit, but you can't say that Safe is controlling capital outflows."

The banks were told to "manage sentiment" to prevent public panic, the banker said, and the banks' research analysts should not broadcast any negative views on the yuan. "They told us not to publish bad house views... on the yuan."

A second banker on the forex team of an international bank said his bank had received the same instructions.

Where a bank has exceeded the Safe-set limits for forex transactions in a month, it must turn business away but is unable to explain why, several bankers complained.

In a verbal order to at least two lenders, Safe said it would vet all cross-border money transfers worth US$5 million (S$7.2 million) or more, down from US$50 million, banking sources told Reuters in late November.

They also told the banks to interview clients to make sure the forex deals were not for fake transactions, or else face punishment, according to two bankers at separate listed banks.

REUTERS

A version of this article appeared in the print edition of The Straits Times on January 12, 2017, with the headline 'Banks say they're forced to cover China forex regulator's tracks'. Print Edition | Subscribe