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ICBC NZ becomes second Chinese lender to impair CBL loan, takes $10.2M provision

Tuesday 3rd April 2018

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ICBC New Zealand has taken a $10.2 million impairment on a loan to CBL Corp, becoming the second Chinese lender to reveal exposure to the insurance group which is in voluntary administration.


ICBC NZ's latest disclosure statement said the lender could slip below the 2.5 percent minimum capital buffer ratio required by the central bank if additional provisioning becomes necessary. It follows the disclosure statement from Bank of China New Zealand, which showed a $12 million provision for impairment losses linked to a single loan in calendar 2017 after reports it lent 19.5 million euros to CBL Corp.  


"I can confirm that ICBC NZ and BOC NZ had the same level of exposure to CBL," said ICBC NZ chair Don Brash in an emailed response to questions. The disclosure statement to Dec. 31 "should reveal the situation pretty comprehensively," he said. 


Chief executive Karen Hou also told BusinessDesk that "ICBC NZ's CBL loan amount is the same amount with BOC NZ, and the bank has made a specific provision amounting to $10.2 million, of the total outstanding principal financed to the group.' 


Notes to ICBC NZ's financial statements said "a borrower group operating in multiple jurisdictions, entered into voluntary administration as a result of on-going investigations that had been carried out by the regulators in those jurisdictions during the year." The total amount of lending to the group amounted to $32.8 million as at Dec. 31. 


"The ongoing regulator investigations during the year represent an indicator of impairment as at the year-end and the bank has made a specific provision amounting to $10.2 million," it said. It noted that the figure is "highly judgemental" and subject to "significant estimation uncertainty." 


The bank's current buffer ratio - after incorporating the aforementioned provision - is 3.3 percent as at Dec. 31, which is in compliance with the minimum buffer ratio requirement of 2.5 percent.   


However, "considering the uncertainty in determining the provision, the buffer ratio remains at risk of deterioration from any further adverse movements to the provision" and could go below the minimum, the notes said. 


The bank is closely monitoring the buffer ratio and is preparing a capital funding plan for submission to the RBNZ in the event additional provisioning is required, according to the notes. The plan includes a range of alternative, including booking exposures to a related party balance sheet and receipt of further capital from the parent. 


Auckland-based CBL appointed KordaMentha voluntary administrators on March 2 after the Reserve Bank sought an interim liquidation of its New Zealand supervised arm and the Central Bank of Ireland made a similar move against the insurer's European division.


CBL's half-year report dated Aug. 30 shows it had bank debt with ANZ Bank and the remaining $50 million and 50 million euros would both mature on Nov. 30. According to the National Business Review, that debt was refinanced and extended to about $170 million to $180 million through a consortium of banks led by ANZ and including ICBC and BOC. ANZ declined to comment. 


The New Zealand stock exchange today noted CBL did not issue its annual report to Dec. 31, 2017, which was due March 30. 



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