FF: There is good growth in the companies we bank at ANZ, but there is also very much a regional story, an Asian Century story – even with the disruption of events like trade wars. If you look around the world this is still the growth region, with global value chains of the biggest companies in the world spanning the continent.
"There are now more customers who we bank in three or more markets across Asia, Australia and New Zealand than we ever did before.” - Faruqui
AC: Where are you seeing developments across Asian markets? Is it the growing middle class? Is it the structural elements in Asian economies?
FF: One is financial institutions. Growth there is partly driven by the fact the world – even now - is becoming a bit less restrictive on cross-border movement of capital. That means, we’re taking a lot more Fund Managers and Sponsors into Asia and likewise seeing greater emergence of native Asian funds, who look to us for Antipodean or Pan Asian structured asset financing and risk management ideas. We’ve recently received a Japan Securities license and continue to see strong investor demand for Australian and NZ debt from North Asian investors.
That distribution channel complements other industry corridors that play to our home market strengths, such as Food, Beverages & Agribusiness as well as Resources, Energy & Infrastructure. In Asia, these industries are buoyed by the wealth effect, which gives rise to changes in consumption and a greater awareness and demand for quality – be it air, food or experience. ANZ is a major connector to that consumer base, through the Institutional companies we bank, and this gives rise to trade financing, risk management, capital markets and specialised financing solutions, including green structuring.
Then of course there is technology, and Asia’s comparatively young population are growing up in a landscape where industries are being exponentially transformed by technological innovation. Technology is no longer a sector in its own right, but in fact has become the connective tissue across several sectors. That means ANZ has needed to adapt to a contemporary landscape that increasingly favours Asia’s privately-owned technology-forward companies over the traditional Asian banking staples of state-run quasi monopolies, such as energy and banking.
We have to become better at responding to change for our own sake, as well as our customers’ – that means developing a better understanding of the major technologies that are disrupting companies as well as our customers’ financial wherewithal, capability and willingness to adapt.
And we’re trying to model that ourselves, particularly in areas such as Trade Finance that are a core competency for ANZ. Our work with the Hong Kong Monetary Authority is an example where ANZ has proactively looked at how we can disrupt ourselves – and we were the only Australian bank on the seven-bank project to build a DLT (distributed ledger technology) trade finance platform here in HK. We took a position that if you want to operate in the ecosystems that we live in, you need to participate in that space. Although blockchain is yet to have scale, we will continue to work with our customers to be more responsive and make trade easier and more efficient for them, using technological innovation to facilitate.
AC: Let’s talk about the trade war between China and the US. How do you see the macroeconomic environment in the region playing into what ANZ is trying to do?
FF: The current US and China trade tension is a point-in-time issue that we need to contend with. It's not really impacting a huge amount of the trade moving around the region today. If it were to escalate, sure. But as things stand today it’s not our primary concern.
I think the bigger issue is that the fundamental structural nature of trade has shifted. Companies are rethinking their production and supply chain considerations to balance migration to lower cost destinations with ethical choices, as well as terms of free-trade agreements which help certain corridors from a trade perspective. We need to make sure we’re helping our customers take advantage of those corridors – and leveraging local insights where ANZ has a presence.
Also the trade proposition for banks is transforming and the value in the future is likely to originate more from the data that accompanies trade and how we can use that data to our clients’ benefit.
AC: How is ANZ’s footprint in the region changing?
FF: It's really a more-focused strategy around the customers we bank, the sectors we want to bank and understanding the role of each country in our network. We are not looking to become a bank for everyone in every country. Instead we want to focus on customers where we add value.
We are doing much better in terms of providing the whole bank to our customers. Today, we are utilising more of our network, more of our product capabilities and delivering higher returns - without necessarily lending more money. In essence these are deeper relationships which hopefully add value to our customers.
AC: You’ve spent the last couple of years then reshaping the network, including some major divestments. Is the network now where you want it to be?
FF: It's actually closer to three years since we really began to reshape, by initially exiting our SME relationships. And the reason we did that was because we had come to understand that particular business required considerable on-the-ground capability and networks - more suited to domestic banks - to be profitable.
So essentially we have moved out of the commercial and retail businesses in Asia. We have refocused on the Institutional business - which is of course ANZ’s traditional franchise in the region - a business where we do have a competitive advantage. This reshaping followed a significant analysis of our customers, identifying those with whom we could add value, grow and who valued our offering.
The focus has paid off and we’re now the number-one choice for Australian companies with offshore banking needs as well as MNCs in Australia, with 40 per cent market penetration according to Peter Lee. Of those customers, twice as many rank ANZ their lead offshore bank compared to our closest domestic competitor.
Our internal analysis shows when we bank Australian companies in Australia our market share is roughly equal to our competitors but when we bank companies with an Asia presence it goes up to 1.5 times the same competitors. When we bank international customers in Australia that figure increases to 2.8.
AC: There has to be a network effect created there?
FF: Correct. If there's a company that operates in China or Vietnam or Thailand or India but only does local business, our ability to add value to that business is very limited.
Our real value comes for those customers who have business across our network, who are investors into the rest of Asia or into Australia or into New Zealand. That's where we get the real uptick in the quality of the relationship we can build. And frankly that's where we add the most value to the customers.
We have the right set of customers who do business with us across multiple markets and who we serve across multiple products. We’re happy with where our base is.
That doesn't mean we won't expand a little bit in certain markets or there aren't more target-market customers emerging. But those are going to be incremental.
AC: Countries in our region have long memories and don't like institutions coming in, pulling out and coming back in. ANZ has a long history in the region - 50 years this year in Japan for example. Is that something that still has value?
FF: Our network strategy hasn’t changed and we’ve been doing Institutional banking in the region for a long time, including over 50 years in some markets.
The work we're doing with our customers and the recognition we get in surveys with organisations like Greenwich Associates and IFR Asia suggests we are adding value. It's not just the length and longevity of our presence, but it's also the quality of our interactions on the ground – and that has improved over a period of time.
Shane White is Content Manager, Institutional at ANZ
Faruqui recently spoke with regional journalists in Hong Kong on the institutional bank’s focus and ambition in the region.