Huaxia joins Chinese banks halting forex services amid currency volatility concerns, but move leaves customers anxious

Tightening of services comes months after Huaxia was fined US$15.2 million for not properly warning clients about the potential risks of investment products

Analysts point to regulator concerns over yuan volatility, as ‘significant investor losses could potentially become a source of social instability’

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Huaxia Bank this week became the latest Chinese commercial lender to suspend its personal foreign exchange trading business amid expectations of greater geopolitical tensions and currency volatility. Photo: Reuters

Published: 9:30pm, 1 Sep 2021Updated: 10:54pm, 1 Sep 2021

A tier-one state-owned lender that drew Beijing’s ire earlier this year for running afoul of rules and regulations has abruptly announced it will halt its foreign exchange trading business – the latest such curbing of services by major Chinese banks this year.

Huaxia Bank attempted to downplay concerns and confusion that arose after it pulled its original announcement posted online on Monday and issued a revised statement on Tuesday.

In its first statement, the Beijing-based bank said it would stop offering personal foreign exchange sales and purchases from December 1 “in response to changes in market conditions”. This set off a panic among customers who thought they would no longer be able to convert their yuan into foreign currencies, which was not the case.

On Tuesday, Huaxia removed the reference to changing market conditions and said, instead, that the temporary changes were due to the bank implementing “optimisation” upgrades. It also clarified that it was halting the changing of freely convertible foreign currencies into other foreign currencies – such as buying US dollars in exchange for Japanese yen – but that the move would not affect the conversion of yuan into foreign currencies and vice versa.

Huaxia did not say when it might reinstate the halted services.

The move comes as China’s currency regulator, the State Administration of Foreign Exchange, has been conducting a rare survey of banks and companies on how they manage their currency exposure and on how they use hedging tools, signalling that authorities are girding for currency volatility, Reuters reported in late August.

Ken Cheung Kin-tai, senior Asian foreign exchange strategist at Mizuho Bank, said that related business services are being tightened at Chinese banks because of expectations of potentially sharp currency volatility, as the US Federal Reserve and other major central banks wean economies off massive pandemic-era stimulus.