ICBC (NZ)'s loan book soars as Chinese-owned bank taps trade ties, mortgage demand

Karen Hou, chief executive of ICBC New Zealand.

ICBC (NZ), the local unit of the Chinese bank that is the world's biggest lender by assets, has lifted its loan book by 343 percent, by tapping into the growing economic relationship between China and New Zealand to write more mortgages, commercial and syndicated loans.

In its second full year of operations, ICBC (NZ) lifted loans and advances to customers to $379.9 million in 2015 from $85.7 million in calendar 2014. Net interest income rose 105 percent to $6.1 million, although a charge against the value of derivatives and increased operating expenses resulted in a net loss of about $3 million, little changed from the previous year.

ICBC (NZ) became a registered New Zealand bank in November 2013 and has since been joined by Bank of China (New Zealand) and China Construction Bank (New Zealand). Its parent has some US$3.6 trillion of assets, operates in 40 countries with 4.6 million corporate customers and 411 million individual customers. Chairman Don Brash, the former central banker and leader of both the National and Act parties, said ICBC (NZ) is aiming to expand in the local market, partly by building its domestic funding base.

"We're close to the limit of expansion on our existing capital base," Brash told BusinessDesk. Expanding "clearly will depend on additional capital."
The biggest growth came from the lender's residential mortgage book, which soared to $102 million last year, from $11.2 million a year earlier. That's still tiny, with even TSB Bank leaving it in the shade with more than $2.7 billion of residential lending last year. Corporate loans jumped to $164 million from $50.7 million and syndicated loans rose to $114 million from $24 million.

Brash said all funding options are on the table at the moment, although he declined to give details other than to say the bank "wants to build its domestic funding base." It offers a full range of mortgage lending rates from floating through to five years fixed. Currently, its floating rate is 5.6 percent, similar to those offered by the big four Australian-owned banks.

ICBC (NZ) aims to be "a bridge between New Zealand and China" and offers services including remittances back to China in yuan, the UnionPay bank card that is accepted in both countries, and an account opening witness product, which allows a local account to be opened via a branch of the parent bank in China. The New Zealand unit also "provides thoughtful Chinese services to help you avoid inconveniences caused by different culture and language," according to its website.

Brash said having started from a zero base two years ago, with $60 million of capital, percentage growth "by definition is very fast".

"The increasing economic relationship between New Zealand and China is an important part of that background," he said, adding that the bank also lends to New Zealand corporates and Chinese-owned companies in New Zealand. For example, the bank and its parent guaranteed $100 million of the $800 million banking syndication for the Transmission Gully motorway north of Wellington.

Being guaranteed by the Chinese parent gives ICBC (NZ) borrowing power that it couldn't manage based on its own balance sheet but its cost of borrowing in New Zealand isn't materially different from funding costs for rival banks. Its medium-term notes have a credit rating of A at Standard & Poor's and Brash says the New Zealand banking sector is "an intensely competitive market."

He said there was a common misperception that people could borrow overseas at "zero interest" and use the funds to buy property in Auckland, driving up prices. That idea was "nonsense" and also didn't acknowledge that using offshore funds involved added currency risk.

He also dismissed the idea that the Chinese banks were in cahoots in the domestic market, saying ICBC (NZ) watches its rivals "like hawks".