China FX regulator looking into impact of weaker yuan on banks, firms-sources

BEIJING, Feb 27 (Reuters) - China's foreign exchange regulator has launched an investigation into the possible impact from recent yuan depreciation on foreign exchange transactions at domestic banks and companies, banking sources said on Thursday.

The State Administration of Foreign Exchange (SAFE) has told banks to provide the latest changes in their forward foreign exchange settlement contracts, defaults or extensions of such contracts as well as information on swaps and options, they said.

"The SAFE has also asked banks to find out the impact of recent renminbi (yuan) depreciation on their corporate and individual clients, and what counter-measures their clients have taken," said one source at a commercial bank, who requested anonymity due to the sensitivity of the matter.

The SAFE's investigation on yuan deals has been focused on banks in Guangdong and Shanghai and some other areas, the sources said without giving further details.

The latest data from SAFE showed that Chinese banks posted a $73.3 billion surplus in spot foreign exchange settlements in January and a $25.4 billion surplus in forward currency settlements, indicating capital inflows.

The yuan has shed about 1.4 percent since mid-January, guided downward by the central bank with the help of major state-owned banks, which traders say were selling off yuan at the central bank's behest.

Many market watchers believe the central bank is intent on punishing speculators who believe the currency is largely a one-way appreciation bet.

As a relatively low-risk, high-yield currency that has gained over 35 percent against the dollar since it was revaluated in 2005, the yuan has become a favorite among international investors.

The PBOC has attempted to deter yuan bulls in the past, but seldom achieved much success.

Most economists and traders still expect the yuan to appreciate between 2-3 percent this year, even given recent developments.

The SAFE attempted to soothe markets on Wednesday, saying that the exchange rate adjustment was "normal," resulting from market players independently unwinding their long yuan positions.

But most participants believe this unwinding was defensive, triggered by state-owned banks' massive dollar purchases.

(Reporting by China Economics Team; Writing by Kevin Yao; Editing by Kim Coghill)