ANZ’s Géczy outlines new, more intense phase of Asian strategy

ANZ has laid out its strategy for deepening and improving returns from its super regional strategy with an emphasis on tighter customer focus, more rigorous selection of relationships and improved productivity.

The shift from the rapid growth of a network focused on Asia and represented in 33 countries, with considerable investment costs, to one where investors can expect stronger profitability over the long term bears comparison with the shift in Australia from a resource investment boom phase to a more sustained production phase.

“What we are moving to now, having built up this business, is incremental improvement in return on equity over the longer time frame,” Institutional and International Bank CEO Andrew Géczy said in Hong Kong at ANZ’s Asian Investor Tour.

“We are shifting into a delivery model, that means better returns for shareholders but we will continue to grow the business too. The strategy needed a bit of sharpening, better use of our capacity – and that’s really an inevitable consequence of the pace of the build up phase we had.”

In presentations to fund managers and analysts around the IIB strategy, Géczy said macro economic fundamentals continued to underpin the business, citing data from The Boston Consulting Group which showed ANZ’s markets would deliver 50 per cent of global banking revenue pools in the five years to 2017. Asia would see compound annual growth of 10 per cent over that period compared with 6 per cent in Australia and 4 per cent in the rest of the world.

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However, Géczy said the next five years would provide notably different conditions on competitive, business, regulatory and economic fronts. He singled out the rise of regional treasury centres in places like Singapore and Hong Kong for multi-national corporations, the withdrawal of global banks, margin pressures and rising trade and foreign investment flows.

“The way we think about it, the focus should shift from geographies to trade corridors – we want to own the corridor and that means the whole business supply chain. It means not just partnering with iron ore companies in Western Australia but the shipping firms, the logistics firms, the buyers and then the supply chain when the steel comes back to Australia,” he said.

“We are no longer thinking only about market share as the share of this market or that market, but rather we are thinking about the market share – or the financial services wallet – of the corridors, or channels, that exist between markets,” Géczy cited the example of an iron ore miner.

Geczy cited the example of an iron ore miner: “Not only do we need to know their people in Melbourne and Perth. We need to know and be close to their export manager in Singapore. Their export manager is the person on the ground doing the selling and we need to understand who they are selling to. Only then can we identify further opportunities to help their business and capture a greater share,” he said.

“The world is more complex and we want to help remove those pain points, whether they’re regulatory or in processes, we’re not just selling financial capital we’re selling intellectual capital, insights.”

Géczy  said the more focussed approach by ANZ translated to less balance sheet based, capital intensive business - which faced tight margins - to more fee and capital light business such as transaction banking. Other operating income, as opposed to interest income, is now 45 per cent of the total.

For trade flows, key market corridors linked Australia, China, Japan and Korea. In capital flows, such as foreign investment to support infrastructure, corridors were Australia, Europe and the Middle East, Japan and Korea. For wealth flows, such as financial institution business and managing financial assets, the key market corridors were Australia, Hong Kong, Singapore, Japan and Korea.

The Asian Investor Tour presentations outlined where ANZ claims competitive advantage through being the only Australia and New Zealand-anchored bank with extensive networks and staff in Asia. The bank was, Geczy said, “the most international of the Australian banks and the most Australian of the international banks”.

Drew Riethmuller, managing director of the customer solutions group, argued ANZ’s Asia Pacific network, product capability and strong risk discipline was unique in the region. The bank’s AA credit rating, while shared by other Australian majors, was a unique feature when coupled with the Asian network for many customers.

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Reithmuller outlined strong customer momentum with 7 per cent compound annual growth in IIB in the five and a half years to March 2014. The “wallet share” of strategic customers had improved with the number of products per customer up to 4.9 from 2.9 in that period while the average number of countries per customer rose to 2.6 from 1.8.

ANZ particularly values that second metric as revenue per client grows exponentially with the more countries the client banks with ANZ in.

As part of a tighter focus, ANZ has split the IIB business into global, international and retail banking. Global clients are small in number but large multinationals. International clients tend to be smaller, concentrated in a particular market but with cross-border business while retail is affluent and aspiring affluent individuals and the business is often linked to corporate relationships.

ANZ aims to be a top three regional bank in the global segment, a lead bank with a full service offering in Australia and New Zealand for the international segment and a top three foreign bank across banking, investment and advice in retail.

Corporate customers have increased from 1,800 to 4,000 since 2009. Within the large corporate segment (Global Banking and large corporate International Banking) ANZ has added nearly 600 new customers in Asia, worth $445 million in revenue.

In tandem with this more intense focus, IIB chief risk officer Doug Stolberg told delegates ANZ had actually been lowering overall risk – even when that came at the cost of some margin. The average investment grading of the bank’s portfolio has been rising. Risk management processes and controls are consistent across the group, he said.

However the risk function was also pro-active in assessing market conditions, delivering insight to customers, for example in assessing the impact ofn rapid falls in the value of Indian Rupee and Indonesian Rupiah last year. The risk group also coordinated a full review of relationships and transactions following the emergence of collateral concerns in the Chinese port of Qingdao earlier this year.

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“Even though the portfolio has been growing quite strongly in the business we have not seen any deterioration in the credit loss performance – and nor do we expect to see that looking forward,” Stolberg said.

ANZ’s risk function was also a competitive advantage in many markets where “compliance is the number one topic”, Stolberg said.

While other banks would be looking at the attraction of Asia, including the Australian majors, Géczy argued it was very difficult to build up the network ANZ has today. “In fact I would say it has become even more difficult in recent years,” he said. “The competition is tough and the regulatory environment is not your friend. We are in the fortunate position of having had people on the ground, having strong relationships with those regulators, now for some time.”

He summed up the achievement of the super regional strategy by saying “we have built a super-regional bank earning above its cost of capital; we have market strength, with significant share in home markets; we have not gone down the credit curve; we have done this the right way, staying true to our relationships with customers and regulators”.

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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