China Construction Bank has been granted a licence by British regulators to expand into the UK’s business banking market in an attempt to cement the City as a hub for Asian financial companies.
The branch licence, the second to be awarded to a Chinese bank in less than six months, will provide the lender with greater freedom to offer wholesale banking services in the UK.
The move comes after the Industrial and Commercial Bank of China, the country’s largest lender by assets, was awarded a banking licence in September last year.
Chaoyong Gong, head of strategic development at China Construction Bank, said the licence means the bank can service local customers as part of its global strategy, while helping to bolster Sino-British relations.
“The UK is one of the top three financial centers of the world; it has a unique status compared with other cities,” he said. “We think the China and UK economic relationship is promising and is very important to CCBC group.”
Mr. Gong said the bank will be able to lend more extensively to corporates and help fund major investment projects, both of which were previously restricted by the lack of a branch licence.
The UK branch of the bank will also be able to take on the parent group’s credit rating, which it was not able to use before as a subsidiary.
“As a branch, we can provide more renminbi clearing business to all customers,” he added. The bank also moved into new offices in London on the same day it was granted the licence by the Prudential Regulation Authority and Financial Conduct Authority.
Chinese banks have complained in the past that UK regulations have made it tough for them to expand, by requiring they operate as highly-supervised subsidiaries. Operating as branches allows the banks to better utilize their parent company’s resources and grow their business more substantially in the UK.
Until now, British regulators have been wary of granting licenses to overseas companies to operate without close supervision, because of fears of a crisis at the parent bank taking root in the UK.
However, the PRA revised its policy on international banks last year, outlining how a lender’s ability to demonstrate strong resolution plans were key to awarding a licence.
As a branch, the UK operation is not required to have separate capital and liquidity, helping to mitigate operating costs for overseas banks seeking to expand in the country.
China Construction Bank, the nation’s second-largest lender, was designated as a clearing bank in London for the Chinese currency in June last year, as part of the country’s aims to increase uptake of the currency globally.
The British government has sought to lure some of China’s largest banks to help bolster trade between the countries and cement London as a base for trading in the yuan.
The PRA said the licence allows the bank to operate institutional deposits, investments and assets, but cannot accept retail deposits above de minimus levels.
By Courtesy of FT
