Source:
WSJSHANGHAI -- Their credit reputation damaged by the global financial crisis, foreign banks face the prospect of being largely shut out of China's rapidly expanding markets for financial derivatives, a potential key source of future revenues.
Starting Sept. 16, China will put into effect a new agreement governing how banks trade domestic financial derivative products among themselves. But as a condition of dealing with foreign banks, China's five largest commercial banks are seeking to impose tough credit demands that will be hard to comply with, according to lawyers and sources at several foreign banks.
Bank of China Ltd., Industrial & Commercial Bank of China Ltd., China Construction Bank, Agricultural Bank of China Co. and Bank of Communications dominate the domestic money markets, supplying as much as 80% of market liquidity. Not being able to deal with them would punch a big hole in the operations of foreign banks in China.
China's derivative markets are rapidly developing, and foreign banks have been hoping their extensive international experience will help them tap a steadily increasing stream of revenues from those markets.
At HSBC Holding's PLC, the only bank that gives a breakdown of its China operations, mainland China was the fourth most profitable country last year for its unit that trades local currencies, bonds and derivatives for large corporate customers, earning $353 million in pretax profits
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