business summary

Chinese Banks Ramp Up Overseas Loans

BEIJING—Big Chinese banks are lending record volumes abroad in a bid to tap new growth, helped by state-backed ambitions to build infrastructure around the world.

For banks, the timing of one of President Xi Jinping’s showpiece initiatives—known as “One Belt, One Road”—is fortuitous: Loans to finance hundreds of projects along ancient trade routes promise oases of profitability amid faltering returns at home.

For the first time, three of the country’s four largest lenders last year posted larger increases in overseas lending than in domestic corporate loans. The expansion, believed to have largely funneled to Chinese companies, comes as Chinese banks try to carve out a bigger presence in some of the world’s priciest business districts, financially as well as physically: Bank of China Ltd. last year moved its U.S. headquarters to a 460-foot-tall glass tower in Midtown Manhattan.

The overseas financing boom is so far confined to a few state-owned banking majors, often called upon to help along policies such as the strategic push to expand China’s influence via infrastructure building.

Bank of China, the fourth-biggest Chinese lender by assets, was the top originator of overseas corporate loans last year, with 1.7 trillion yuan ($246.8 billion) in such lending, a 10.6% increase from 2015.

It was the first time its rise in new overseas loans, at 166.2 billion yuan, outstripped the increase in domestic corporate loans, at 94.6 billion yuan. Bank of China has always had the biggest overseas-loan portfolio among Chinese commercial lenders; the bank last month said it was “exploring deeply the ‘blue sea,’” a Chinese term sometimes used to mean rich market potential.

Industrial & Commercial Bank of China Ltd. and China Construction Bank Corp. , China’s No. 1 and No. 2 lenders, are quickly catching up, posting even larger percentage increases in overseas loans with volumes that for the first time exceeded 1 trillion yuan last year. The third-largest, Agricultural Bank of China Ltd. , is more heavily focused on the domestic market.

Overseas loans are still dwarfed by banks’ domestic loan books, but banks have looked to them—as well as to higher banking fees and off-balance sheet investment products—to make up for an erosion in domestic interest earnings. Five years ago, Bank of China used to lend one yuan abroad for every 3.3 yuan it lent at home. That measure last year was one yuan abroad per 2.6 at home.

“We may be slowing in our pace, but we’re accelerating in our restructuring,” Bank of China President Chen Siqing said, referring to the bank’s offshore emphasis.

At a March 31 earnings conference, Mr. Chen devoted most of his remarks to the bank’s overseas gains, even as a weak economy at home took down Bank of China’s 2016 profit by 3.7%—its first decline since 2004. Domestic loans eked out growth of just 0.7%.

To entice borrowers, Bank of China last year offered an average 2.5% rate on overseas loans, about two points lower than domestic corporate loans, said Executive Vice President Gao Yingxin. Despite the lower interest rates, the bank’s overseas divisions posted a 39% increase in profit last year.

Chinese banks predominantly lend to Chinese state-owned companies, analysts say, though they are trying to court more foreign borrowers. The banks didn’t respond to questions about the makeup of their customers.

ICBC posted a 26% increase in overseas loans last year from a year earlier to 1.12 trillion yuan, compared with 0.2% on the domestic front. It said its overseas division was profitable, without elaborating.

Construction Bank said overseas loans rose 31%, compared with 1.5% growth domestically. Its overseas divisions posted a 3.2% rise in profit last year, compared with the bank’s overall profit growth of 1.5%.

Projects related to the “One Belt, One Road” plan accounted for about 15% of the overseas loans at Bank of China and ICBC, with volumes rising at a double-digit pace, according to bank data. The banks collectively extended more than $50 billion last year to more than 400 projects under the flagship blueprint.

Among the larger projects, Construction Bank last year syndicated a $1.3 billion loan to finance the construction of a hydropower station in Laos. The borrower: Powerchina Resources Ltd., a utilities builder contracted on the state-backed project.

ICBC described “One Belt, One Road” as a boon for the banking sector, saying it “will produce a large number of high-quality investment opportunities.”

The overseas surge reflects the broader pace of China’s outward direct investment, which last year expanded by 40.1% to $170.1 billion, despite Beijing’s stricter scrutiny of capital outflows. Part of such controls include requiring special approval for large overseas investments, which big banks say hasn’t deterred their operations.

“We’re fulfilling our internationalization, and this supports our Chinese companies ‘going out,’” Mr. Gao said.