Chinese banking giant breaches Reserve Bank rules

Former Reserve Bank Governor Don Brash chairs the local arm of the biggest bank in the world.
David White

Former Reserve Bank Governor Don Brash chairs the local arm of the biggest bank in the world.

One of the Chinese banking giants setting up shop in New Zealand has already run afoul of the Reserve Bank, in a technical breach of its conditions of registration.

China's state-controlled Industrial and Commercial Bank of China (ICBC), the largest bank in the world, received a local banking licence in late 2013.

Its latest disclosure document reveals the Reserve Bank issued a notice in November last year, advising it was in breach of its conditions of registration.

ICBC NZ chairman Don Brash, who is himself a former Reserve Bank governor, said the breach was a "misunderstanding".

"We appointed a compliance officer and the chief executive thought that because he was still on a 90-day probationary period, he could still apply for Reserve Bank clearance," he said.

However, all direct reports to the chief executive must be signed off by the regulator in advance.

Brash said the new staff member had since been given the green light, and the Reserve Bank had chosen not to penalise ICBC.

The bank is now seeking approval for its new chief executive Hou Qian, who has 28 years experience with ICBC in China, Korea, Indonesia and Britain.

Kiwibank and ASB have also breached their conditions of registration in recent years with similar technical breaches.

While banks can face fines of up to $1 million or in the worst-case scenario have their licences cancelled, both also escaped sanction.

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ICBC's New Zealand operations reported a net loss of $2.98m in the 2014 calendar year, with expenses far exceeding interest income.

"We're obviously keen to break even as soon as we can, but setup costs are quite substantial when you're a small operation," Brash said.

Last year the bank opened its first branch on Auckland's Queen Street, but Brash said there were no immediate plans to start a retail branch network.

The bulk of the fledgling bank's loan book is in corporate and syndicated loans, with a relatively tiny $11.2m worth of mortgages.

"We expect to be doing primarily corporate and commercial business, including of course trade finance with companies trading with China, particularly," Brash said.

"Certainly we'll do some residential mortgage lending as well."

Brash's role at ICBC earned him $65,000 in director's fees last year.

He is one of several prominent ex-National Party politicians to take roles with major Chinese banks entering the New Zealand market in the last two years.

Former prime minister Dame Jenny Shipley chairs China Construction Bank's New Zealand arm, while Ruth Richardson and Chris Tremain are directors of Bank of China (NZ).

Richardson is the free-marketeer who delivered the infamous "mother of all budgets" as finance minister in 1991, while Tremain was a Napier electorate MP and cabinet minister before retiring from politics.

 - Stuff

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