Giant AgBank sets up shop Down Under

Agricultural Bank of China, one of China’s biggest lenders, has been granted a banking licence by Australian regulators.

Agricultural Bank of China, one of China’s biggest lenders, has been granted a banking licence by Australian regulators, as Asian banks ramp up their operations in the fiercely competitive market.

AgBank, one of the world’s largest banks by market value, will today officially launch a “branch” in Sydney after being approved as a foreign authorised deposit-taking institution by the Australian Prudential Regulation Authority.

Foreign banks tend to operate as subsidiaries incorporated in Australia or branches, with the latter not holding capital locally and not able to take retail deposits from Australian residents of less than $250 000.

An AgBank spokesman told The Australian in an email the bank had no plans to write home loans and would focus on wholesale banking.

The move signals AgBank’s growing ambitions in Australia, with the bank previously having just a representative office in Sydney. AgBank said the branch would be its first banking operation in the southern hemisphere, representing an “important milestone” for its global expansion.

“The branch will build a foundation for the bank to expand within Australia and the Asia-Pacific region,” AgBank said.

“The Sydney branch will provide its clients with wholesale banking products at an early stage, such as corporate lending, trade finance, multi-currency settlements, payments and other services.

“The branch capitalises on the bank’s client base, abundant funds and extensive network.” AgBank, which is listed in Hong Kong and controlled by the Chinese government, last week posted a 14 per cent rise in first-quarter profit to 53.4 billion yuan ($9bn). In contrast, Commonwealth Bank, Australia’s largest lender, posted a $4.3bn profit for the first six months of the financial year.

AgBank’s expansion continues a growing push by Asian lenders into Australia since the global financial crisis as European banks pull back.

In 2012, the Reserve Bank said European-owned banks had lost about 4 percentage points of the business lending market since 2009 while Asian banks increased their share by about 2 percentage points.

The RBA added that branches typically focused on wholesale banking as they had more “flexibility” to access funding globally, including through their parents, while subsidiary operations tended to do more retail banking and funded operations through deposits.

“The growth of Asian-owned banks over recent years reflects a growing appetite to expand their existing Australian operations as well as some new entrants from China and other countries in the region,” the RBA said.

AgBank joins several other major Chinese banks in Australia. According to APRA’s lending data, Bank of China has $8.3bn of loans, China Construction Bank has $1.2bn and Industrial and Commercial Bank of China has $2.7bn.

In contrast, CBA has $478bn of gross loans and advances.

The growing interest of Asian banks in institutional banking is likely to put further pressure on the Australian banks’ margins, analysts say.