Eric Wong (Research Department, Hong Kong Monetary Authority) Jim Wong (Research Department, Hong Kong Monetary Authority) Phyllis Leung (Research Department, Hong Kong Monetary Authority)
Abstract
Using the Capital Market Approach and equity-price data of 14 listed Chinese banks, this empirical study finds that there is a positive relationship between bank size and foreign-exchange exposure, which may reflect larger foreign-exchange operations and trading positions of larger Chinese banks, and their significant indirect foreign-exchange exposure arising from impacts of the renminbi exchange-rate movements on their customers. Empirical evidence also suggests that the average foreign-exchange exposures of state-owned and joint-stock commercial banks in China are higher than those of banks in Hong Kong, notwithstanding that their participation in international banking businesses is still limited compared with their Hong Kong counterparts. It is also found that negative foreign-exchange exposure is prevalent for larger Chinese banks, suggesting that an appreciation of the renminbi tends to reduce their equity values, and is therefore likely to hamper the banking sector¡¦s performance. Together with the fact that decreases in equity values generally imply higher default risk, how Chinese banks would be affected under different scenarios of renminbi appreciation should be closely monitored.
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Publisher Info
Paper provided by Hong Kong Monetary Authority in its series Working Papers with number
0807.
Find related papers by JEL classification: E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies F31 - International Economics - - International Finance - - - Foreign Exchange G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
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References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
John Freebairn & Bill Griffiths, 2006.
"Introduction,"
The Economic Record,
The Economic Society of Australia, vol. 82(s1), pages S1-S1, 09.
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