Lenders in Tianjin cut back on EU exposure

By Wang Xiaotian (China Daily)
Updated: 2012-02-08

Economists say likelihood of Greece exiting eurozone has increased

BEIJING - Chinese banks and companies in the northern city of Tianjin have cut exposure to Europe in a move to reduce their risks amid the spreading eurozone debt crisis, a newspaper run by the Chinese central bank has reported.

Europe is Tianjin's second-largest export destination after the United States.

A survey of 53 banks and 15 companies conducted by the local foreign-exchange regulator found that 11 banks had tightened the reins on Europe-related business, the Beijing-based Financial News reported on Tuesday.

The banks had reduced lending to foreign, especially European, lenders, cut or halted trade finance for European countries with high debt risks and suspended derivatives business with European banks, the report by the People's Bank of China-run newspaper said.

In addition, the banks were being choosier about their clients and reminding them of risks related to their foreign trading partners.

Banks also reported cutting issues of euro-denominated wealth-management products, after the weakening euro hurt earnings last year.

However, Chinese banks generally believed they had only limited exposure to the eurozone debt crisis, because their holdings of euro bonds were very low, and their limited euro-denominated assets mainly represented loans to finance trade, which would be little affected by further euro depreciation.

The top Europe-related risk for Chinese lenders was securitized euro-denominated debt, said Li Jianjun, an international finance analyst at Bank of China Ltd.

Although Chinese lenders have become more prudent since the start of the sub-prime crisis in the US years ago, they still held such debt, Li said.

Willem Buiter, chief economist at Citigroup Inc, said on Tuesday that the likelihood of Greece exiting the eurozone over the next 18 months has risen to 50 percent, up from 25 to 30 percent previously, because the willingness of creditors to support Greece has "fallen substantially".

"We continue to think that an uncontained exit would have grave implications for the rest of the euro area, the EU and the world at large," he said in a research note on Tuesday.

"We also expect agreement with its official creditors on a second bail-out. Greece is therefore likely to avoid disorderly default when its next bond redemption is due (which is on March 20, but a seven-day grace period applies)."

As overseas liquidity tightened and funding costs for banks to finance overseas capital have almost doubled since September, overseas payment services provided by lenders to clients have shrunk, the survey found.

Chinese companies had been paying import bills directly by buying foreign currencies, according to the survey.

China Daily

(China Daily 02/08/2012 page16)