Asia's banks stepping up lending in Australia
Asian institutional banks have been expanding at a huge rate in Australia, chasing a more profitable market given our relatively high interest rates, while European banks continue to exit the market.
Chinese, Taiwanese and Japanese-based banks have a combined $88 billion in assets in Australia, which now exceeds the $79 billion of US bank loans to companies in this country. China Construction Bank, Bank of China and the Industrial and Commercial Bank of China (ICBC) have been among those expanding the fastest.
Chinese and Taiwanese banks have experienced the biggest expansion – a four-fold increase since 2010, when their assets were just $9 billion, at an average rate of 38 per cent a year since 2013, analysis of banking data by corporate law firm Minter Ellison shows.
European banks still have the biggest share among foreign lenders, at $175 billion, but they have been declining by about 7 per cent a year for more than five years.
Bank of China has amassed $20 billion in total assets in Australia, up from just $8.7 billion in 2013, including total loans of $13.5 billion, up from $6.2 billion, the Minter Ellison analysis shows.
ICBC has almost doubled its book, from $2.6 billion to almost $5 billion. China Construction Bank has increased its loans more than five-fold in the same period to about $4.3 billion, including the acquisition of the RBS Australian loan book in 2015.
At a slower pace
Japanese banks have also been bulking up on Australian corporate loans but at a much slower pace, increasing at about 16 per cent a year.
However, they still have more assets than Chinese banks, at $52 billion in total. At The Australian Financial Review Banking and Wealth Summit this week Makoto Shibata, head of global innovation at Bank of Tokyo Mitsubishi, will discuss how the lender is using technology to drive its expansion.
The foreign banks have moved into Australia by a combination of purchasing loan books and organic expansion, mainly by joining banking syndicates lending to big business, primarily in the commercial property and infrastructure sectors.
Minter Ellison partner John Elias, a debt markets specialist who has advised on many of the deals done to achieve this expansion, said it was clear Asian banks were more than filling the gap that departing European banks were leaving.
Australia was a relatively profitable market for global banks simply because its interest rates were higher than almost any other developed country, Mr Elias said. Even though it had a record low cash rate of 2 per cent now, Japan recently introduced negative interest rates.
However, China's cash rate was still 4.35 per cent and negative rates in Europe had not been enough to stop the withdrawal of its banks from Australia.
Much of the reason Chinese banks were in Australia was because their clients were, Mr Elias said.
More profitable market
"Australia is simply a more profitable market because our interest rates are so much higher. But Chinese and Japanese banks are also following Chinese and Japanese businesses," he said.
European banks' total assets in Australia have fallen more than 25 per cent in the past six years, from $239 billion in January 2010 to $175 billion in January 2016, data from the Australian Prudential Regulation Authority shows. Bank of Scotland, ABN Amro, Allied Irish Banks, Lloyds and Societe Generale are some of the European banks that have pulled out of the Australian market.
Minter Ellison mergers and acquisitions lawyer Victoria Allen said the purchase of loan books had helped the Asian banks quickly establish relationships in Australia, to then make further loans to the business borrowers.
The transition from simply buying loans to organic expansion is most evident at Bank of China, which increased its institutional book by more than $4 billion in 2015, mainly via syndicate lending.
Ms Allen said recent changes to the Foreign Investment Review Board's rules made it easier for banks to buy into the Australian market. However, there is concern over changes in the government's approach to approving mergers and acquisitions, with Treasurer Scott Morrison indicating he won't decide whether to approve offshore buyers until the preferred bidder is chosen.
"We have an example at the moment where the Treasurer has said he is not going to consider all these bidders. He is going to wait until we decide who we want to be the preferred bidder," Ms Allen said. "If he then chooses to reject that buyer, it could be disastrous."