ANZ boss eyes institutional bank investment
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ANZ Bank is keen to invest more capital into the part of the bank that services major domestic and overseas corporations, a sector that is benefiting from market volatility while returns from mortgages are being squeezed by stiff competition.
Institutional banking, which deals with large corporate clients, is a core part of ANZ and an area that underwent extensive restructuring earlier in chief executive Shayne Elliott’s tenure.
ANZ Bank chief executive Shayne Elliott at its half-year results last month.Credit: Arsineh Houspian
During an ANZ board tour of India, Elliott said that of ANZ’s four main businesses, institutional banking had been the toughest one to get right. But he said he now believed the institutional bank was in good shape, giving ANZ extra options to invest compared with its more domestic-focused rivals.
International banking services such as trade finance, foreign exchange, hedging, and lending to big business customers overseas, are key parts of the institutional bank.
“We have diversification, so now that institutional is doing well, and we think there’s more opportunity there yes, we will pivot more of our capital…to institutional,” Elliott said.
“It’s not necessarily at the expense of retail in Australia, so it’s not like we take away from retail… it just means our marginal investment is more likely to go into institutional because that’s where the opportunity is today.”
‘Will it really move the dial a lot? Probably not, unless they can show some sort of competitive advantage.’
Speaking in Mumbai last week, Elliott he said India’s fast-growing market was a prime example of the potential ANZ saw in institutional banking.
The institutional division posted sharply higher profits in ANZ’s half-year results, as it benefited from strong growth in deposits and wider margins – in contrast to the industry-wide decline in retail banking margins in recent months.
With the big four banks’ returns from home loans under pressure, and with the domestic economy slowing sharply due to rising interest rates, some analysts agree that ANZ’s institutional bank is a key point of difference.
Citi’s Brendan Sproules said in May that ANZ’s institutional business was an advantage in the current environment, and it was one reason why its margins were declining more slowly than peers.
ANZ bank.Credit: Natalie Boog
However, chief investment officer at Atlas Funds Management Hugh Dive, an ANZ shareholder, said he was generally sceptical about overseas expansion by Australian banks, and they needed to focus on areas where they had a competitive advantage over local banks or bigger foreign rivals.
“It’s a nice story,” Dive said of ANZ’s push for more institutional business. “Will it really move the dial a lot? Probably not, unless they can show some sort of competitive advantage.”
ANZ operates institutional banking units in 18 markets outside Australia and New Zealand. After Elliott was appointed CEO in 2016, ANZ changed its overseas strategy by pulling out of retail banking in Asia, while shedding lower-value customers form its institutional business.
ANZ’s managing director of international, Simon Ireland, said market volatility caused by the collapse of Silicon Valley Bank in March had led to a rise in deposits with ANZ from big overseas clients, given the bank’s high credit rating. Ireland said provisions for bad debts in his division were “extraordinarily low” and the bank was planning to expand in a conservative way, such as by working with clients it already knew.
“We look at the customers that we already know and we’ve been dealing with for the last 10 years, and we continue with those customers. You’ve got to remember some of these customers at the moment are growing at about 25 per cent,” he said.
ANZ chairman Paul O’Sullivan said the bank’s board trip to India, which is experiencing yearly economic growing of about 6 per cent, reflected ANZ’s priority of dealing with trade and capital flows across the Asia-Pacific region.
“We’re the biggest institutional bank in Australia and the biggest international trade and finance provider for Australian companies. So for the board, this was front and centre of what we’re looking to focus on as a strategy,” O’Sullivan said.
The reporter travelled to India courtesy of ANZ Bank.
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