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Chinese bank seeks approval for UK branch, reports FT

BritCham / CBBC
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The following article was published here in the Financial Times on 19 June 2014.
 
By Delphine Strauss and Sam Fleming
 
China’s second-biggest lender is pressing UK regulators for approval to set up a branch in London as part of a drive to expand its international business.
 
China Construction Bank – nominated this week as the official clearing bank for renminbi trading in London – first approached the Bank of England about establishing a branch in 2012. Wang Hongzhang, the bank’s chairman, said it was now working hard with regulators to win a branch licence as soon as possible. 
 
Operating as a branch, rather than a subsidiary, would allow CCB London to offer services on a much bigger scale, backed by its parent’s capital and liquidity. That would allow it to expand in syndicated lending, advisory services for infrastructure projects and M&A, and to venture into asset management, Mr Wang said. 
 
UK regulators, wary of importing banking crises, have been reluctant to grant licences that would allow institutions to run large-scale UK operations without coming under an equivalent regulatory regime. 
 
George Osborne, UK chancellor, has been courting the Chinese as he tries to build up the City of London’s renminbi business. On a trip to Beijing last October he said that the Bank of England had given approval for Chinese banks to be able to establish wholesale branches in the UK, which would provide services to other large institutions, allowing them to “significantly scale up their activity” in Britain. 
 
However, a condition of their branching into London will be that they focus on wholesale banking, rather than more economically sensitive retail services. China and the UK have subsequently been in discussions over the detailed terms under which banks from Beijing will be allowed to branch into London. 
 
In February the Prudential Regulation Authority set out its approach to foreign banks as the authorities try to strike a balance between welcoming foreign finance and protecting the UK from financial instability. It made it clear that regulators do not want to see branches of banks from outside the European Economic Area offering anything other than minimal retail business unless there is a “very high level of assurance” about their country’s crisis-management plans.
 
CCB currently operates in the UK on a subsidiary basis, but the bank has outlined ambitious plans to expand overseas. Mr Wang said that, while CCB’s international operations had previously tended to support Chinese companies, it would in future focus on winning business from local enterprises. It aims to build a network of 30 international operations across developed and emerging markets by the end of 2015. 
 
Mr Wang flattered his hosts, saying CCB would be a “little brother” seeking to learn from its peers in the City, but that it could support London’s position as a foreign exchange trading hub by promoting offshore trade in the renminbi. 
 
He gave no forecast for the volume of renminbi trading he expected CCB’s clearing service to support, but hinted that growth in renminbi business would now depend in large part on the extent to which China opens access to its onshore capital markets. 
 
Mr Osborne welcomed the nomination of a local clearing bank as a boost for London’s bid to become the main western renminbi trading hub. However, Beijing has balanced CCB’s designation with the nomination, just two days later, of Bank of China as the renminbi clearing bank in Frankfurt.
 
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