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The share of business loan approvals owned by foreign banks has been “fairly high” thanks to Asian banks’ growing presence, the Reserve Bank of Australia has said.
In its statement on monetary policy for the June 2017 quarter, the RBA noted that the major banks’ share of new business loan approvals is low compared to recent years, reflecting deliberately reduced exposures to certain industries and larger companies. However, the RBA also observed that the share of approvals owned by foreign banks “has been relatively high, partly reflecting increased competition from Asian banks”.
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The RBA report added that there was “uncertainty” about how authorities would navigate the “difficult trade-off between growth and the build-up of leverage in the Chinese economy.
“To address risks in the shadow banking sector, the authorities have recently sought to improve coordination among financial regulators and have announced tighter regulatory measures, but such measures are difficult to calibrate.”
In August, Paul Mirams, partner at advisory firm KordaMentha blasted the federal government’s response to foreign investment in regards to housing affordability.
However, CT Johnson, managing director of China research company Cross Border Management, has argued that attempting to curb foreign investment in Australia is akin to “holding back the ocean with a broom”.
Dan Holden, director of HoldenCAPITAL, has applauded Australian investment partnerships with China, but said that added regulatory red tape would do more harm than good.
In July, Delany Financial director Michael Delany said that he had had his most successful year in construction finance without using any of the major Australian lenders. He explained: “There are billions of dollars streaming in from funds out of Hong Kong, China and Singapore that are very willing and able and looking to do construction deals.”
Mr Delany said further: “They might be more expensive than the banks, but at least you get them done. It allows the clients, the developers to get on and complete their projects and get the development finished quicker."
Going deeper
The report found that overall business credit “remained modest”, in line with the amount of loan approvals. According to the central bank, the recent uplift in business credit growth in some ways reflected “some stability” in resource sector lending, following a period of deleveraging.
“Demand for credit remains uneven across industries. Recent weakness in business loan approvals has been concentrated in industries such as transport and storage, construction, telecommunications and utilities,” the RBA said.
Ian Narev, CBA's CEO, echoed the RBA in CBA’s 2017 financial results announcement this week, saying: “Headline indicators show that the Australian economy remains sound overall, albeit variable. . . . Cyclical investment in mining and construction has underpinned our economy for some time. The next wave of more broad-based business investment that we need to secure jobs and lift wages is important.”
He added: “Global caution remains high due to geopolitical change and less expansionist monetary policy.”
The central bank said that approvals for construction of residential property maintained “relatively elevated” levels, but that approvals for commercial property construction had declined.
[Related: Broker applauds China innovation partnership, warns against ‘red tape’]
