ANZ is playing the long game in Asia on returns, customer relationships

ANZ’s head of institutional banking Mark Whelan and the bank’s CEO, Shayne Elliott. Picture: Arsineh Houspian.

Getting a handle on how significant ANZ’s Asian operations are to the bank’s overall earnings is no easy feat.

What’s clear is ANZ’s institutional bank does house several big-name multinational customers outside of financial institutions, which are a large chunk of its customer base.

Auto behemoth Toyota, agribusiness giant Olam Group and South Korea’s Hyundai are just a few of the multinational names that have an ANZ relationship.

Last month, ANZ closed an $US1.35bn green labelled k-sure covered term loan facility for Hyundai related to its first US electric vehicle manufacturing plant. The bank also jointly provided a green loan for the Hyundai Motor Group Innovation Centre in Singapore.

After divesting its Asian retail banking operations, ANZ has restructured its institutional bank in Australia and across the region, the latter being where economic growth dynamics point to a sizeable opportunity. However, it won’t be easy, particularly as Australian companies and banks have a poor track record on hitting the return metrics investors expect when they venture outside their home market.

ANZ chief executive Shayne Elliott has labelled the Asian operations a “significant part” of the bank’s overall business, but noted he was focused on the returns generated from specific customer relationships.

“When we get a fair return for our capital is when we bank somebody in more than one place,” he told this column earlier this month. “We bank Toyota in 20 markets … the way that we think about Toyota is what’s the revenue generation on the Toyota relationship relative to the capital and the cost that we invest to generate it?”

ANZ’s institutional banking boss, Mark Whelan, believes the Asia growth story will pay off.

“It’s not just about technology … it’s also about how people operate, and we think that’s a powerful advantage in an economy that’s going to explode over the next two decades,” Whelan said.

“ASEAN (Association of Southeast Asian Nations) is going to be the fourth-biggest economy in the world. That’s a foundation that we’ve built … you look at the numbers and even the return on equity, we’re just at the start here.

“If you bring Australia and New Zealand together, it’s still probably in a revenue sense bigger than international, but that gap’s closing.”

ANZ doesn’t provide a detailed breakout of profit geographically, making it hard to get a read on Asia’s contribution to earnings.

ANZ’s international operations, including Papua New Guinea but not New Zealand, within the institutional bank saw cash profit climb 19 per cent to $634m in the six months ended March 31, versus the prior half. But when the first half is compared to the same period a year earlier, the cash profit is 4 per cent lower.

The cash profit from the international operations is close to what the Australian part of the institutional division booked at $629m, but when New Zealand’s $259m is included, this part of the world is more meaningful.

If PNG is excluded from international’s cash profit, the interim result sits at $598m.

However, given ANZ has notable operations and support staff in India, that does skew the results somewhat given the requisite expenses that need to be booked.

Whichever way you cut it, there is an opportunity in Asia for ANZ. But ANZ’s business there will have to navigate declining interest rates across many continents and jurisdictions over the next 12 months and a higher risk profile through many parts of the region.

ANZ’s institutional bank also continues to grapple with compliance and cultural issues. The bank has tapped consultants Oliver Wyman to conduct a review of culture and governance in its institutional unit, which is the subject of a probe by Australia’s corporate regulator.

The author travelled to Singapore as a guest of ANZ.