Shanghai-listed China Minsheng Banking Corporation Ltd revealed yesterday that it will now be able to conduct derivatives transactions.

The privately owned bank has obtained a licence from the China Banking Regulatory Commission, meaning that it will provide two new foreign exchange wealth management products to institutions and high-end retail clients.

Bank sources said, through the use of financial derivatives such as swaps and forward contracts, clients would be able to hedge risks and increase profits.

Several more similar products would be promoted by the bank in the coming months to serve the need of ordinary retail customers, whose demand has grown for such services to help them better manage their assets.

Minsheng is the second bank to receive a derivative transaction licence in China, following the Agricultural Bank of China, after the commission issued the country's first regulation in derivatives transactions in February, which specified qualifications for banks to open derivative product business and asked all banks to acquire a new licence before September 1.

The rule is aimed at standardizing the behavior of commercial banks in the derivative business.

Though many banks have been providing derivative products, they will no longer be able to do so after September 1 if they do not get the licence first.

Due to the partial convertibility of renminbi, the financial derivative products offered by Chinese banks so far are still all based on foreign currencies.

But that does not slow down the pace of development of the business, which is growing rapidly in China as local institutions become increasingly exposed to foreign exchange risks and retailers seek better wealth management products.

"When derivative products can meet the demand of our clients, it also offers a new profit resource for our intermediary services," said Yan Junwei, general manager of Minsheng Bank's Financial Institution Department.

(China Daily May 25, 2004)