China challenge tipped for big Aussie banks

China Construction Bank has nearly 15,000 branches and 300 million customers in China. Pictured is Wang Hongzhang, Chairman of China Construction Bank. Photo / AP

Arrival of Asian giants will keep dominant Aussie-owned lenders on their toes, says Reserve Bank deputy.

Reserve Bank deputy governor Grant Spencer says the arrival of Asian banking giants is a watershed event that will boost competition and keep the dominant Australian-owned lenders "on their toes".

Speaking at the launch of China Construction Bank's New Zealand operation on Friday, he said the Reserve Bank recognised the benefits of competition and diversity.

"As of this week we now have three registered Chinese banks and together with the new Indian banks I feel this may be something of a watershed in the New Zealand banking system, where the international presence has traditionally been dominated by European and Australian banks," Spencer said.

"We expect the new entrants like CCB [China Construction Bank] will bring new approaches to banking and certainly help to keep the large banks on their toes."

He said profitable growth in the short term would be challenging for a new entrant such as China Construction Bank.

"However, I'm sure that the CCB New Zealand board and management team are capable of meeting the challenge," Spencer said. "They have the support of a strong parent bank and very favourable trade winds at their back."

Bilateral trade between China and New Zealand hit $20 billion this year and the two countries want to increase two-way trade to $30 billion by 2020.

Bank of China last week became the third bank from Asia's biggest economy to be granted New Zealand registration. Its clients include major Chinese companies doing business in this country such as homegoods maker Haier, which acquired Fisher & Paykel Appliances in 2012, and telecommunications giant Huawei.

Industrial and Commercial Bank of China and China Construction Bank were registered by the Reserve Bank in November 2013 and July, respectively.

Banks from the subcontinent are also setting up shop in New Zealand, with Bank of India and Bank of Baroda having established a presence here.

Massey University banking expert David Tripe said the newly arrived Chinese lenders were unlikely to become significant retail banking competitors to the big four Australian-owned banks - ANZ, Westpac, BNZ and ASB.

He said the competition could come in the commercial space, facilitating the trade of Chinese companies doing business in New Zealand and Kiwi firms going in the opposite direction.

Grant Spencer says the arrival of the Asian banks is a watershed event. Photo / Mark Mtchell

"Certainly for people trading into China they will have much better networks in China than our banks," Tripe said. "What these Chinese banks won't have is better networks in New Zealand."

Industrial and Commercial Bank of China has opened a Queen St branch and offers retail services including mortgages, says its website.

China Construction Bank New Zealand chairwoman Dame Jenny Shipley said its current focus in this country was in the wholesale -- rather than retail -- banking market.

"We're particularly interested in infrastructure and very keen to support major projects like the Christchurch rebuild. We have a large appetite for the right projects."

She said the Chinese banks would introduce "a different set of competitive pressures" and bring new energy to the local banking sector.

China Construction Bank, which last year approved a US$50 million ($63.3 million) capital injection to set up its New Zealand subsidiary, has nearly 15,000 branches and close to 300 million customers in its home market.

Which Asian banks have arrived in New Zealand recently?
China Construction Bank, Bank of China and Industrial and Commercial Bank of China, as well as India's Bank of Baroda and Bank of India.

Why are they coming?
The Chinese banks are likely to focus on facilitating the growing trade and investment flows between New Zealand and China. Significant immigrant communities, as well as large numbers of foreign students, are also helping to attract Chinese and Indian banks to New Zealand.

Are they a competitive threat to the more established players?
They are unlikely to pose much of a threat in retail banking. However, there is potential for them to gain traction in commercial banking for Chinese firms doing business in this country and New Zealand companies in China.