China Construction Bank keen to lend for infrastructure, including apartment, development, but aims to do half its lending in the home loan market

China Construction Bank keen to lend for infrastructure, including apartment, development, but aims to do half its lending in the home loan market

By Gareth Vaughan

China Construction Bank New Zealand sees a big opportunity to lend money for infrastructure development and will ask the Reserve Bank to let it operate a NZ branch alongside the subsidiary of its Chinese parent to better enable this, deputy CEO Lloyd Cartwright says.

Speaking to in a Double Shot Interview, Cartwright, who has previously worked for Westpac, noted China Construction Bank, or CCB, is the biggest infrastructure lender in China by some distance, and is spreading its wings internationally.

"So New Zealand would be no exception to that. We still have a strong desire to build infrastructure business in New Zealand. We've been hiring, lending and participating in projects in New Zealand along those lines," Cartwright says.

Asked about Auckland's housing shortage and NZ's Australian owned banks scaling back lending for property development, Cartwright says CCB is already actively funding developments.

"When it comes to the apartment space, housing, we have banked and funded a number of those projects. Rose Garden, which is New Zealand's largest apartment development on the North Shore, is a CCB funded project currently."

"We have a number of other projects in our pipeline. Albeit our lending would be aligned with our overall risk appetite. So we've got a certain amount of our balance sheet that we can do in house lending and development lending or apartment lending. It's probably a similar risk profile to what you would see in any of the other New Zealand banks, including the Australian banks," he says.

"We do see a big opportunity in building out infrastructure. Clearly New Zealand has got a large infrastructure pipeline in the next 20 years and you see various estimates coming out of Treasury and the likes, numbers north of $100 billion. That in my mind is not necessarily going to be funded by the existing banking groups. They will be able to fund portions of that, but I think there needs to be some step changes in terms of how we look at those projects, how we fund those projects, how we procure those projects, that will be required to deliver a pipeline of that nature," says Cartwright.

The benefits of having a branch

CCB obtained banking registration, as a subsidiary of its parent that's majority owned by the Chinese government, from the Reserve Bank in July 2014. In December the Reserve Bank clarified its rules for dual registration, being local subsidiaries and branches, of small, non-systemic foreign banks.

Local incorporation status alone currently means CCB and NZ's other Chinese banks, ICBC and Bank of China, are subject to restrictions on related party exposures imposed by the Reserve Bank as part of their conditions of registration. In contrast a branch structure allows access to significant amounts of related party funding. Cartwright says CCB has engaged with the Reserve Bank on its desire to establish a branch structure in NZ alongside the CCB subsidiary.

"The Reserve Bank publicly issued a policy paper around the ability for smaller banks in New Zealand to establish a dual registration model, IE a branch and a subsidiary. In our view that's a significant step and opportunity for us to participate in larger projects. It would give us a lot more ability to bring our global balance sheet, our global funding capability, our global expertise, to the fore in New Zealand whereas operating in a subsidiary has some limitations in that respect," Cartwright says.

"We have not applied [for dual registration status yet]. We are in the process of preparing our branch application, which is clearly an important application for us."

Mortgages for high net worth Chinese clients

CCB is also carving out a presence in the residential mortgage market, where Cartwright says it has built a lending book of about $450 million over the past two years.

"The mortgage market is clearly a very large component of overall lending in New Zealand so it would be remiss of us not to participate in that space. We have been actively building a mortgage book which is primarily based around high net worth Chinese clients. So we've built a book of around $450 million over the last two years, and that's about 50 odd percent of our total asset growth. And we see that as being consistent from a risk perspective with other banks operating in New Zealand."

Although NZ's major banks closed the door on mortgage seeking foreigners reliant on offshore income last year, CCB did not.

"The reason we do that is because we believe we have an advantage over those players in terms of our ability to look through to the end client and the credit in China, which gives us some comfort around the due diligence process and source of income and the like. We feel a lot more comfortable operating in that space than another bank might," Cartwright says.

In China, individuals are restricted to exchanging the equivalent of US$50,000 into foreign currency annually. However, the Chinese have proven to be creative at finding ways of getting money out of their homeland. Asked about people bringing in more than US$50,000 from China, Cartwright says; "You'd have to ask the individuals how they've managed to go through that approval process. It's not something that the bank gets involved in."

In terms of money flowing from individuals in China into NZ, he says CCB has seen some reduction of this over the past six months.

Servicing the five-year plan

From a day-to-day perspective Cartwright says those working at CCB NZ don't really notice that their bank is majority owned by the Chinese government.

'I think the way I would maybe describe it is; if you look at how China works strategically, the big picture approach China has to strategy, we do see that. From a broader strategic perspective as the five year plans role out in China we see the banks align their business models to service those strategic needs globally. So the example I'll give is the going out strategy from China where we see many Chinese corporates expanding through mergers and acquisitions globally that the banks are following."

"Those clients, and New Zealand is a classic example of that. We're seeing increasing FDI [foreign direct investment] from China over the last 15 or 20 years, and that made a very obvious case for Chinese banks to operate in New Zealand. That's very well aligned with the business links that China and New Zealand have," Cartwright says.

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Basically now people will be able to receive like before based on overseas (China) income. NZ will be a playground of Rich from China in a big way.

If Chinese people borrow from a Chinese bank with a branch in NZ to purchase a house in NZ does the Chinese government see that as a capital outflow? Can they leverage their properties in Shanghai to purchase property in Auckland?


So one capital constrained small bank (locally), albeit a Chinese one, has lent $450m to Chinese buyers in two years. Multiply that by the number of Chinese banks (3 I know of), add to that the lending local banks and other funding sources were doing (which was massive) and then finally factor in the cherry on the top which is the full cash buyer. That is one massive impulse coming into a very small market (Ponzi), that is already supply constrained and in demand from investors and home owners armed with cheap credit. I wish I could laugh at what a joke the political failure has been but it’s just sad and something we will never recover from.

Can anyone please explain how this benefits the average working Kiwi.

Jobs in Chinese Government owned banks.

Only for those who speak fluent Mandarin.

National-voting investor-boomers see further gains in the portfolio at the expense of future generations of Kiwis?

How long until young Kiwis start to get angry enough to get violent, one wonders...

No Andy -As you fear there is no Santa Claus. There are no benefits for the average working Kiwi. But whoever said that all this love of increased GDP, the economy etc was ever about benefiting the Kiwi citizen.