ANZ shrugs off metals financing exposure

Bank chief says checks on processes have tightened amid mainland probe into fraud claims over stocks warehoused at Qingdao

PUBLISHED : Saturday, 19 July, 2014, 1:58am
UPDATED : Saturday, 19 July, 2014, 1:58am

Australia & New Zealand Banking Group has tightened its commodity financing processes in China "a little bit" amid a probe into metals stockpiles at Qingdao port, chief executive Michael Smith said.

Financing using commodities as collateral was an "important business" for ANZ, Smith said yesterday, adding he was not worried by any exposure the bank had to that business in China. He did not provide specifics on how the company had beefed up its procedures.

The comments came as Chinese authorities examine allegations of fraud linked to metals warehoused at Qingdao.

Decheng Mining, a trading firm at the centre of the investigation, pledged the same metals stockpile three times over to obtain more than 2.7 billion yuan (HK$3.37 billion) of loans, a person briefed on the matter said.

Historically, these things do come out of the closet occasionally

"Historically, these things do come out of the closet occasionally," Smith said. "This is as old as time and it is up to the individual banks to ensure their risk management is good enough to try to avoid these situations."

He did not elaborate on the size of the lender's commodity financing business in China.

The bank said last month it had "limited indirect exposure" to Qingdao port and did not expect any losses.

"We are okay at the moment," Smith said. "We've tightened up a little bit, but you'd expect that."

Steps by the Chinese government to rein in credit raised borrowing costs and triggered a surge in financing deals where traders use commodities from iron ore to rubber to get funding. Goldman Sachs estimates such financing to be worth as much as US$160 billion.

Standard Chartered is suing Chen Jihong, Decheng Mining's owner, for US$35.6 million the bank says it is owed. The lender's commodity-related exposure in the Qingdao area was about US$250 million, it said.

Standard Bank Group, based in Johannesburg, said it started legal proceedings in China to "protect its position" after about US$170 million worth of aluminium was held in bonded warehouses.

Citigroup has said it would work closely with the authorities and warehousing companies to resolve any problems for clients.

Smith also said he was not seeing any signs of "overheating" in Australia's housing market.

ANZ has expanded its share of the nation's mortgage market for four consecutive years to 15 per cent as of May 31, Australian Prudential Regulation Authority data shows.

Outstanding mortgages rose 6.2 per cent in the year to May, the fastest pace in three years, Reserve Bank of Australia data shows.

Australia's average home price grew 18 per cent from a trough in May 2012 to a record, according to the RP Data-Rismark home value index.

"The housing market is pretty contained at the moment," Smith said. "It's something that we have to watch. I think the important thing for banks is that the underwriting standards are maintained."