DBS mum on reports of its suspension from China forex business

DBS mum on reports of its suspension from China forex business

SINGAPORE - OCBC Bank and United Overseas Bank (UOB) both confirmed on Thursday that they continue to trade foreign exchange in China, unlike several banks like compatriot DBS Bank that are said to have been banned from doing so.

The respective spokeswomen of OCBC and UOB told The Business Times their banks face no ban on trading forex in China.

DBS spokeswoman Edna Koh declined to comment on reports that the bank is among others suspended from some forex business by the People's Bank of China.

"We heard that DBS had been banned since December," a source told BT.

Another source said banks which follow rules don't get into trouble.

DBS Group Holdings and Standard Chartered are among banks suspended from some forex business in China, reported Bloomberg citing sources.

StanChart has appealed to China's central bank to shorten a ban running through March, said one source, reported Bloomberg. DBS's ban is shorter than three months, it said.

The clampdown came as the growing offshore-onshore spread made it profitable to buy the currency in Hong Kong and sell it in Shanghai, said Bloomberg. China's decision to suspend StanChart was reported earlier by Reuters, which also cited Deutsche Bank among lenders banned.

The suspensions come amid turmoil in China's markets.

The yuan's fall accelerated on Thursday as the PBOC again sent markets and currencies tumbling by setting the official midpoint rate on the yuan, also known as the renminbi (RMB), at 6.5646 per US dollar, the lowest since March 2011, said Reuters.

That was 0.5 per cent weaker than the day before and the biggest daily drop since last August, when an abrupt near 2 per cent devaluation of the currency also roiled markets.

On Wednesday, Tommy Xie, OCBC economist said in a note that the Chinese regulators have tightened up cross border arbitrage activities.

"It seems the Chinese government has given up its spread intervention after the CNY-CNH spread is no longer the hurdle for RMB to be recognised as a freely usable currency," said Mr Xie. CNH refers to offshore renminbi (RMB). He also said that the latest clampdown on cross border arbitrage also suggests that it makes no economic sense for China to intervene in the spread.

Chinese regulators are paying more attention to cross-border arbitrage activities, he said. The latest news that a number of foreign banks have been suspended for transacting cross-border RMB business in late December following the 0.3 per cent penalty margin implemented from September suggests China's commitment to stop banks from gaming the system.

This article was first published on Jan 8, 2016.
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