Finance

Christopher Langner is a markets columnist for Bloomberg Gadfly. He previously covered corporate finance for Bloomberg News, and has written for Reuters/IFR, Forbes, the Wall Street Journal and Mergermarket.

Investors wishing they had more, or indeed any, exposure to Iran now the country is reopening for business may want to look to Chinese banks.

As the Middle East's second-largest economy puts out its welcome mat, European lenders are still shying away, having been burned by a string of heavy fines for violating sanctions against Iran. Chinese banks, on the other hand, don't have such painful memories, plus they already house much of Tehran's international cash, which was previously frozen. China is also the biggest buyer of Iran's key products, from polyethylene to nuts and caviar.

It's another example of how Chinese neutrality in some of the most contentious global issues over the past five years has opened the doors for its financial institutions. The Chinese do abide by international sanctions, with the occasional exception (Bank of China was earlier this year said to have unwittingly allowed money destined for North Korea through some of its accounts). But as HSBC, Deutsche Bank, Societe Generale and Standard Chartered can attest, lenders in the West aren't always snowy white either.

Snap Back
Bank of China only began featuring in Russian league tables three years ago and while its share fell after sanctions in 2014, it rebounded quicker than its peers
Source: Bloomberg

The difference is what happens after sanctions are eased. Chinese banks have to worry less about a public backlash if they're seen to be helping nations that, until a few months earlier, were making headlines for all the wrong reasons. With Beijing's imprimatur, and cognizant of China's voracious appetite for commodities, these new frontier markets are rolling out the red carpet.

China's generally neutral stance also makes it easy for companies and governments from Tehran to Moscow to tell their own public that they're dealing with the world's second-largest economy. Explaining to your voters that the same America that was demonized last month is now a friend is a bit more difficult. 

Russia is a case in point. Most of the biggest Chinese lenders have local subsidiaries there and last year, China Construction Bank started to issue bank cards to its northern neighbor. In 2014, when countries in the West were imposing financial sanctions due to Russia's involvement in the Ukraine civil war, Bank of China ranked 42nd in a bond- and loan-underwriting league table. Last year, its increased business in the country saw it finish in 21st place, according to data compiled by Bloomberg.

Tightening Noose
Financing for Russian companies is at the lowest in a decade after sanctions were imposed
Source: Bloomberg

European lenders such as Societe Generale, Raiffeisen Bank International, ING and Nordea rank higher, but they may be about to lose that lead. With the eurobond market remaining mostly shut for Russia's companies, many are exploring selling bonds in China. The financial institutions chaperoning such deals are likely to be Chinese, not only because they know the market better, but again, because they probably won't face much public backlash. 

From an investor standpoint, Chinese banks may be the best way to get exposure to some of these places. The vacuum left by European lenders means Bank of China and its ilk stand to make a pretty penny from lending where others fear to tread.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Christopher Langner in Singapore at clangner@bloomberg.net

To contact the editor responsible for this story:
Katrina Nicholas at knicholas2@bloomberg.net