Chinese banks in NZ likely to mean more choice, more competition

There have been recent reports that the Industrial & Commercial Bank of China (ICBC), which began lending last year, has been making inroads into the mortgage market.

Also, the China Construction Bank and the Bank of China are said to be establishing themselves in New Zealand.

The arrival of these banks in the country was unlikely to have much impact on the industry for some time, according to a number of brokers spoken to by landlords.co.nz.

However, Loan Market’s Bruce Patten warned that, ultimately, their arrival could be bad for the industry.

He said it will lead to more competition in a market which is over-stocked with lenders in the first place.

“While their arrival is potentially good for consumers, it is bad for the industry because we are over-banked already. It is likely to lead to a rationalisation, and demise, of some of the smaller players in the industry.”

Their establishment follows on from the Bank of Beroda’s entry into the market a few years ago and is likely to be prompted by New Zealand’s growing population of migrants, Patten continued.

‘The Chinese banks must think there is potential there with new arrivals – especially as the banks are a recognisable brand for them.”

But, to date, they only seemed to be doing a small volume of business and, even with growth, they would take considerable time to gain a foothold in, and impact on, the industry.

Patten said that if you look at the Bank of Beroda, as an example, they have had zero impact on the industry from a retail perspective and haven’t factored into the mix at all.

“Additionally, if you look at HSBC, it has a minimal market share and is actually retrenching at the moment.”

These banks might prove to be an attractive “familiar face” option for Chinese people in New Zealand, but are unlikely to have a big impact, Go2Guys’ Cameron Hastie agreed.

He said they are currently lending at the same rate as the major banks but the greatest fear would be that they will start lending at Chinese interest rates, which could led to a flood of buyers on to the market.

“I don’t think that is likely to happen. But there is probably an unwarranted fear about it which is related to that fear of ‘overseas’ buyers in the New Zealand market.”

Mortgage Supply Company CEO Jenny Campbell said she has heard more rumours about certain Chinese banks moving into the mortgage market than anything official to date.

In her view, their arrival would be warmly welcomed although she too doesn’t think they will have an enormous impact.

But it would result in more consumer and lender choices which was a good thing, she said.

“The reality is that the face of Auckland is changing. A lot of people are coming here from Asia and have existing relationships with these lenders which, in turn, could make it easier to borrow in New Zealand.”

Meanwhile, Squirrel Mortgages' John Bolton said the Chinese banks have shown a desire to be International banks not specifically Chinese banks.

This meant they are likely to want to gradually talk to the whole market, not just the ex-pat Chinese market – although that was an easy place to start. 

“ICBC is appointing someone to oversee residential mortgages so we can expect to see some action there.”

The question was whether they would opt for a small footprint like HSBC and operate out of a couple of Auckland branches and/or whether they could open up to third party distribution like brokers. 

“I suspect they might just pick a few brokers initially to have a direct relationship with. That way they can get some volume in a controlled way without blowing up their systems and processes.”

He added that the New Zealand market on its own wasn’t big enough for the Chinese banks and would probably function as a base for the Pacific.