China banks seek more hedging tools as yuan rises

BEIJING, Jan 16 (Reuters) Major Chinese banks are asking for more hedging instruments to allow them to deal with potential foreign exchange losses as the yuan appreciates, Xinhua said late on Monday.

''Chinese commercial banks need more derivative instruments to hedge against foreign exchange losses,'' said Wen Bin, a senior strategic analyst at the Bank of China (BOC), according to the Xinhua report.

Foreign currency exposure was concentrated in China's largest banks: Industrial and Commercial Bank of China , China Construction Bank , Bank of China and Bank of Communications , said Wen.

The four banks had a total exposure of billion, he said.

''With option transactions incapable of guarding against exchange losses, at the moment Chinese banks can only rely on swap and forward transactions,'' said China Construction Bank President Guo Shuqing.

Guo called on banking regulators and the central bank to relax restrictions on hedging, giving Chinese banks more leeway to hedge their foreign currency exposure.

The Chinese yuan has risen 3.88 percent in value since reform of the exchange rate system was launched in July 2005, said Xinhua.

The Bank of China, the country's largest foreign exchange bank, suffered exchange losses of 3.5 billion yuan (8 million) in the first half of last year, while China Construction Bank had losses of 2.4 billion yuan, according to Xinhua.

However, the Bank of China's net foreign currency exposure was too small to pose a substantial threat to the bank, the bank's Vice President Zhu Min said.

REUTERS PKS BST0532