Loan hedging all the rage

Demand for foreign currency hedging has increased after the Chinese central bank’s moves to weaken the yuan, says Bangkok Bank China.

The ratio of foreign currency hedging has surged to above 50% of client exposure, said chief executive Suwatchai Songwanich. He said demand has risen since August 2015, when policymakers in the world’s secondlargest economy devalued the yuan.

The devaluation shocked the market and drove customers to hedge their foreign currency exposure, Mr Suwatchai said.

“Demand for protection against foreign currency risks is expected to strengthen amid wild currency swings across the world, and the yuan’s movement poses a larger impact for the bank’s customers than other currencies do,” he said.

The bank has offered foreign currency hedging services since 2012 but it received lukewarm demand from customers in the early stages as the yuan at that time was fixed.

Mr Suwatchai said strong demand for foreign exchange hedging contributes to the bank’s higher fee-based income, which will remain a focus amid cautious lending.

Fee-based income represents a small portion of Bangkok Bank China’s total revenue, below 10%. The bank believes there is potential to grow foreign exchange services, trade financing and cash management, he said.

Given the trend of yuan devaluation, demand for yuan-denominated loans is increasing, said Mr Suwatchai. Yuandenominated loans make up 80% of the bank’s total, up from 76% last year.

Bangkok Bank China’s lending for the first half grew 4-5% from the end of last year, which is the level expected for the full year.

The bank has a number of deals in the pipeline, including 10 for outbound Chinese direct investment to Thailand, he said. The credit line for outbound investment from China averages 1 billion baht per project.

Bangkok Bank China kept its non-performing loan ratio below 1%, compared with the Chinese banking sector’s ratio of 1.81% in the second quarter this year. The bank continued to keep its strong risk management amid China’s economic slowdown and focused on existing clients rather than new ones.