Exclusive: Banks forced to cover tracks of China's forex regulator

Wed Jan 11, 2017 9:07am EST
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By Engen Tham and Samuel Shen

SHANGHAI (Reuters) - 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, several bankers said.

Both demands are seen as an attempt by the authorities to prevent alarm that could trigger further declines in the yuan, the bankers from local and foreign banks said.

The yuan lost more than 6 percent against the 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 don't reveal its role in such restrictions, six bankers said, which was damaging their relationships with clients since they were unable to explain why they were turning away business.

In a statement late on Wednesday, SAFE's Shanghai branch said it had not adopted new measures to control forex conversions and cross-border payments, but had urged banks to strengthen checks on compliance and deal authenticity.

SAFE also said a media report about it telling banks to keep its instructions secret was "inaccurate, and is misleading public opinion and disturbing normal operations of the Forex market".

SAFE did not identify the media outlet or detail what was inaccurate and misleading. There was no reply at its Beijing headquarters or Shanghai branch when Reuters called for comment outside normal office hours.

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

FILE PHOTO: A 100 Yuan note is seen in this illustration picture in Beijing March 7, 2011.  REUTERS/David Gray/File Photo