Bank of China’s local retail arm is reining in lending to business customers as it continues to expand its mortgage book at a breakneck clip.
Financial accounts lodged with regulators show that Bank of China Australia Limited posted a 24 per cent rise in net profit to A$30.4 million in the 12 months to the end of December 2021.
The record earnings result sprung from another period of blistering growth in home lending and a funding shift towards securitisation that enhanced the group’s net interest margin.
BoCAL grew its mortgage book by more than 30 per cent last year after writing more than $1 billion of new home loans.
Since 2017 the bank has quadrupled its mortgage business partly as result of forging distribution deals with large national broking groups such as AFG and Connective.
The home loan book stood at $4.8 billion at the end of March, which ranks BoCAL among the top 25 home lenders in the Australian banking sector.
BoCAL’s mortgage business is currently on a par with IMB Ltd ($4.9 billion) and MyState Bank ($5.3 billion), but at its current growth rate it is poised to overtake Bank Australia ($6.4 billion) within the next 18 months.
The introduction of the Reserve Bank’s Term Funding Facility in 2020 has induced a big change in the way the bank funds its loans.
In 2019 BoCAL funded its lending through retail deposits and by tapping a wholesale vehicle managed by Bank of China’s Hong Kong branch.
However, the creation of an internal securitisation program in 2020 to access the TFF has proven so advantageous that the bank used it to fund more than a third of new home loans written last year.
More than $300 million of funding was sourced through securitisation in 2021.
The program – known as the China Dragon Trust 2 Series – had claims over $501 million worth of Australian mortgages at the end of December.
Bank of China appears to have made a strategic decision to not support business lending through the BoCAL subsidiary.
Total business lending more than halved in 2021 to only $27 million. The Bank of China now offers corporate lending exclusively through its foreign branch in Sydney.
The activities of the Sydney Branch are not reflected in BoCAL’s accounts.
BoCAL’s strong result was not matched by Bank of China’s retail banking subsidiary in New Zealand.
In the 12 months to the end of December Bank of China New Zealand Limited posted a 5 per cent rise in net profit to NZ$20.3 million.
The Australian and New Zealand subsidiaries did not pay any dividends to their Beijing-based parent.