Banks see slide in forex savings

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Last updated at: (Beijing Time) Wednesday, November 26, 2003

Banks see slide in forex savings

Foreign currency savings at Chinese banks registered an unusual dip in the first 10 months of the year as individuals increasingly opted to hold the local currency - the renminbi.

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Foreign currency savings at Chinese banks registered an unusual dip in the first 10 months of the year as individuals increasingly opted to hold the local currency - the renminbi.

Analysts say expectations that the renminbi will appreciate played a large part in the slide of forex savings, which was seen only during times like large forex-denominated stock offerings.

The trend appears to be putting some strain on commercial banks as forex loans, especially short-term lendings, accelerated rapidly; but both banks and analysts say the situation is unlikely to deteriorate significantly.

Forex savings slackened their pace since the beginning of this year, and dipped to US$86.8 billion at the end of October, down 1.9 per cent on a year-on-year basis.

"Expectations for a stronger yuan were apparently a major reason," said Wang Yuanhong, a senior analyst with the State Information Centre (SIC).

Many residents with US dollar holdings chose to avoid the risk of a further weakening in the greenback by converting them into the local currency, he said.

Renminbi savings deposits jumped 19.9 per cent in the first nine months of the year to 10.1 trillion yuan (US$1.21 trillion), 1.8 percentage points higher than a year earlier, statistics from the People's Bank of China indicated.

Interest differentials between US-dollar and renminbi deposits are another major factor behind the weakening appetite for the hard currency, analysts say.

The interest rate on one-year small-sum US dollar deposits now stands at a historic low of 0.5625 per cent, which compares to 1.98 per cent on equivalent renminbi deposits.

On the other side of banks' balance sheets, forex loans continued an uptrend in the first 10 months of this year, soaring by 28.4 per cent year on year to US$128.2 billion at the end of October.

Short-term loans, in particular, expanded by a blistering 44.6 per cent to US$43.7 billion.

Despite an apparent decline in dollar excesses, some banks say they are not feeling any immediate liquidity pressure, or a lack of funds for lending operations.

"For the time being, we are not feeling any substantial pressure," said a senior official with Industrial and Commercial Bank of China, the nation's largest commercial bank.

"We do not see any urgent need to increase our forex deposits," said the official who declined to be named.

Still, many commercial banks have been stepping up efforts to attract forex deposits, mostly by launching new personal finance products that offer higher returns, 21st Century Business Herald newspaper reported on Monday.

"Personal forex business is very important to commercial banks, as forex savings can account for as much as 60 per cent of a bank's total forex deposits," it quoted a banker as saying.

But the situation is unlikely to worsen significantly to cause major difficulties at commercial banks, the SIC's Wang said. "With expectations of a yuan appreciation subsiding in the months ahead, I think the situation will start to improve," he said.

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