CHINA’S banks are muscling into Australia by financing fast-growing Chinese property and corporate investments in the country, invoking a warning from the Australian regulator that rapid expansion by foreign lenders is a potential systemic threat.

    Total loans by Chinese banks that operate in Australia grew by more than 36 percent in the year to end-February compared with a 9 percent growth in loans overall, according to the latest data by the Australian Government.

    More Chinese banks are looking to set up shop in the US$1.2 trillion Australian economy that is dominated by four major domestic banks. China Merchants Bank is finalizing plans to open its first branch in the country this year, sources said.

    But the speedy growth of foreign banks, spearheaded by Chinese lenders, is worrying Reserve Bank of Australia (RBA) Governor Glenn Stevens. In March, he cited the risk of overheated markets and consequent loan losses to the domestic banking system from foreign lenders’ unbridled growth, and also criticized them for being fair-weather friends in the past.

    Foreign banks’ expansion and the associated risks could be a significant theme in the central bank’s half-yearly report on financial stability later this month, analysts said. Some said RBA may even eventually introduce regulation if the trend of foreign banks’ strong growth continues.

    “I don’t think regulators would go as far as macroprudential regulatory adjustments in the short term. If current growth rates continue it’s always possible,” said Martin Smith, head of markets analysis at business banking research firm East & Partners.

    For Chinese lenders, Australia has emerged as a bright spot, especially as profit growth at home has fallen to a decade-low.

    In the US$75 billion syndicated-loan market, which funds commercial property and corporate transactions, Chinese banks more than doubled their share in 2015 to 7.1 percent of this market, data from Thomson Reuters Loan Pricing Corp. showed.

    They are also bulking up in the residential property and consumer loans businesses.

    Chinese investment in Australia is surging. China beat the United States for the second straight year to become the top investor in Australia in 2014/15 by value of all approvals, mainly driven by property, according to latest government data. China’s industrial investment also feeds its hunger to secure global supply chains.

    “Our primary client base is Chinese, we are following the movements of our China clients,” a Sydney-based loans banker at a top Chinese bank said of the push into Australia.

    Major Chinese banks lending in Australia include Bank of China, Industrial and Commercial Bank of China (ICBC) and China Construction Bank.

    RBA’s Stevens fears that the rapid growth in lending, especially to property developers, would create oversupply in the market and a boom-bust cycle could eventually lead to large loan losses for all banks. That would spill over to an economy already grappling with a severe commodity downturn.

    “One is duty bound to observe that there is a history of foreign players expanding aggressively in the upswing only to have to retreat quickly when more difficult times come,” Stevens said in a speech last month. He did not single out China, but its banks are the fastest growing among foreign lenders in Australia.

    For the main domestic banks — Australia and New Zealand Banking Group (ANZ), Commonwealth Bank of Australia, National Australia Bank and Westpac Banking Corp. — the growth at the Asian lenders comes as another challenge as they seek to improve shareholder returns and profits amid slowing revenue growth and stricter regulatory capital rules.

    Stevens did welcome the stiffer competition in lending, as the dominance of the big banks had risen after European and U.S. lenders retreated following the global financial crisis. RBS, Barclays and the arm of General Electric are among lenders that have pulled back from Australia in recent years.

    The big four domestic banks together account for nearly half the total share of Australia’s syndicated loans and over 80 percent of US$1.75 trillion overall loans.

    Some said the presence of foreign players will benefit the loan market as a whole.

    “The fact that there are more players willing to participate in deals is good news,” said John Corrin, ANZ’s head of loan syndications in Hong Kong, as more players mean greater liquidity in the market. (SD-Agencies)