China Banks Limit Currency Trading With U.S., European Lenders

By Judy Chen and Belinda Cao

Sept. 26 (Bloomberg) -- Chinese banks are limiting foreign- exchange transactions with U.S. and European financial companies on concern the global credit-market seizure will cause more failures.

Domestic banks are cutting trading with international firms in the interbank market, according to Zhuang Zhiqiang, a trader at Xiamen International Bank Co., which is partially owned by the Asian Development Bank. The move aims to control risks after the bankruptcy of Lehman Brothers Holdings Inc. stunned domestic investors, said Zhao Qingming, an analyst in Beijing at China Construction Bank Corp., the nation's second largest lender.

``We've turned more cautious,'' said Zhuang, who is based in the southern Chinese city of Xiamen. ``Bank officials are worried about settlement risks as the ongoing crisis has weakened people's trust in U.S. banks.''

Banks should be more ``sensitive'' to risks on the global financial markets and improve controls amid the current turmoil, Liu Mingkang, chairman of the China Banking Regulatory Commission, said in a speech posted on the top banking regulator's Web site yesterday.

The regulator hasn't responded to a fax sent by Bloomberg to request for comment on the reduction in trading with foreign lenders.

``It's something quite normal,'' said Zhao. ``Not only Chinese banks, but banks in other countries should consider potential risks at this time.''

To contact the reporters on this story: Judy Chen in Shanghai at xchen45@bloomberg.net; Belinda Cao in Beijing at lcao4@bloomberg.net.