China Construction Bank (CCB), the world's second biggest bank, wants to become more involved in funding New Zealand infrastructure and housing projects as the country becomes less reliant its traditional lenders - Australia's big four banks.

CCB New Zealand, which gained a local banking licence in 2014, already has a balance sheet worth $1 billion.

It has already supported some large corporate transactions and is involved in the mortgage market. Its New Zealand mortgage book - lending to its mostly Chinese customer base - stands at $400 million.

The bank is the biggest infrastructure lender in China by a comfortable margin, and is second in size only to the Industrial and Commercial Bank of China.

Advertisement

The New Zealand operation of CCB was one of a small group of funders to get in behind the Puhoi Motorway extension.

New Zealand deputy chief executive Lloyd Cartwright said local borrowers would need to look further afield for funding, based on the country's future infrastructure requirements, the need for more houses and what he said would be tighter credit conditions in the years ahead.

Cartwright said the need for new sources of funding would increase as the credit available from the big four banks tightened when they sought to comply with Australian Prudential Regulation Authority (APRA) regulations, specifically standard APS222, which banks were informed of 2015.

The changes give Australian parent banks five years to reduce their non-capital New Zealand operations to less than 5 per cent of Tier 1 capital.

"Increasingly, the New Zealand arms of those Australian banks are deferring to APRA over the Reserve Bank of NZ in terms of those regulatory overlays," Cartwright said.

There was also the issue of a widening gap between credit growth and deposit growth, with household borrowing continuing to outpace household deposits, he said.

Cartwright said the bank was likely to apply to the Reserve Bank to operate as both a subsidiary and a branch, which would open the local operation up to the group's balance sheet, capital, funding base and product expertise - particularly in infrastructure.

He expected the other big Chinese banks operating here - International and Commercial Bank of China and the Bank of China - to follow suit.

Cartwright said more infrastructure development in New Zealand meant borrowers would need to look further afield for funding.

"New Zealand has a large infrastructure requirement over the next 20 years and it is not going to be funded by the existing banking group - it's just not possible," he said in an interview with the Herald.

"We believe that there is a significant opportunity in New Zealand, for not only us, but for some of the other incoming banks, to support some of those large projects.

"A branch structure would enable China Construction Bank to do some of that larger lending."

Cartwright said he expected pressure on New Zealand's funding requirements to emerge in the form of the widening gap between credit and deposit growth.

Commenting on Auckland housing developments that failed to go ahead last year, Grant McKeown, the bank's director, institutional and corporate banking, said developers needed to work with their banks at an earlier stage of a project to see it come to fruition.

Developers also needed to look at a wider network of banks to fund their projects, so the sales process, funding and construction could be brought closer together. McKeown agreed that borrowers would need to look further afield.

"Chinese banks don't have the same linkages to APRA, and the Melbourne property market is not going to contaminate our outlook on a good project in New Zealand," he said.

In terms of the so-called funding gap, McKeown said there needed to be a "broadening of the mind" in terms of the funding options.

"If Auckland wants to build the houses that it wants to build, and if New Zealand wants to do what it wants to do, it's going to have to broaden out its horizons in terms of its funding - away from the big four Australian banks," he said.

"There is a surplus of global equity and capital looking for good projects, so if the demand story in New Zealand is robust, there is capital that will flow," he said.

"We should not get into a cul de sac where it is either the Australian banks or nothing," McKeown said. "That is not to say that CCB is going to solve it alone, but we are part of that alternative."