Aussie banks see limited growth in China

Lack of strategic options leads banks to reconsider additional investments in China’s banking sector.

The tight grip of China’s central government on its banking sector has led two of Australia’s largest banks with little prospect of increasing their exposure or gaining control of a local bank.

Analysts said holding minority stakes in Chinese banks no longer made strategic sense for Australian banks and they may look to offload them. Under Basel III these investments look increasingly capital-intensive and one to wonder what value they really add, according to one analyst.

The Australia and New Zealand Banking Group last year backed out of a plan to invest $120 million in the Bank of Tianjin through a capital increase. Instead, ANZ put an extra $300 million of capital into its own operations in China. The bank said the decision to dilute its holding in Bank of Tianjin came down to a competition for capital

Commonwealth Bank of Australia said its investments in two Chinese banks have given it a far better and more in-depth knowledge of the Chinese market, a conclusion similar to that of ANZ. CBA, however, has no additional investment plans in China.

Other foreign lenders trying to establish their brand in China have also found it tough going. They face heavy regulation, can only open one new branch each year and are restricted in the amount of capital they can bring into China.