ANZ’s Mekong Strategy to end in June, but the bank will stay in Asia

ANZ will unwind the last part of its retail operation in Asia with the closure of its Japanese business, but the bank insists it is still committed to the region.

ANZ Bank advertised its retail operation in Vietnam on a fleet of motorbikes and scooters.

The billboards are gone and the retail bank sold, but ANZ is quick to remind investors the bank is still in 13 countries across Asia despite the public walkback from its formerly highly touted Mekong Strategy.

The plan, pushed by ANZ’s former boss, Mike Smith, resulted in ANZ muscling its way into the retail market across Asia. It ran adverts on a fleet of motorcycles in Indonesia’s capital, Jakarta, as well as ATMs across major cities in Vietnam.

But the closure and transfer of ANZ’s retail operation in Japan in June this year marks the end of its grand plans to bank Asia’s growing middle class.

The Mekong Strategy, named after the river that snakes down from the Tibetan plateau, through Myanmar, Laos, Thailand, Cambodia, and Vietnam, was aimed at growing ANZ’s presence throughout the region.

ANZ has been in Asia for decades – first entering Japan in the 1950s as an institutional player.

But in recent years the bank has sold off or closed its retail presence across the region.

ANZ head of South East Asia, India and Middle East Mark Evans said that despite the apparent retreat, the bank had only fully pulled out of Cambodia and Myanmar.

He said the institutional side of the bank was still present in most of the countries it previously operated in.

“There was a change in the risk appetite in terms of where we want to go,” he said.

The bank’s first foray into retail operations came after ANZ bought Grindlays Bank in 1984, giving it exposure to India, countries in Africa and parts of Asia.

ANZ entered Vietnam in 1993, when it was one of the first Western banks to get back into the market.

Mr Smith, its then chief executive, called the growing list of banks and branches operating under the ANZ umbrella the Mekong Strategy – a super-regional plan to bank Asia’s growing middle class.

In 2015 ANZ snagged a full banking licence in Thailand, soon followed by opening its office in Myanmar’s business capital Yangon under the auspices of the then-ANZ CEO for international and institutional banking Andrew Géczy who ran the international business from 2013 to 2016.

The Asian pivot wasn’t unique to ANZ, as all of Australia’s banks were looking to stake claims in the region in the period after the opening up of Australia’s financial system in the 1990s.

Some are still there, which has led to some surprises: Commonwealth Bank’s Indonesian subsidiary, PT Bank Commonwealth, was hit by a cyber attack in March.

CBA has been touted as considering a sale of its Indonesian operation – which the bank took on in 1992 – and which caters to small and medium-sized businesses as well as the country’s affluent savers.

Mr Evans said despite the unwinding of the retail bank strategy, a key pillar of Mr Smith’s model was visibility across ANZ’s Asian business.

ANZ Bank was one of the first Western financial operations to enter Vietnam after the country reopened in the 1990s.

No longer is the business a series of semi-independent operating banks across the region. Instead, ANZ now has visibility and one linked system allows executives to look at its Asian operations from the Hong Kong headquarters.

Mr Evans said ANZ aimed for a “consistent experience” for its customers across the region.

“We have test screens that basically flag any material change, not every transaction, but we look at it thematically,” he said.

“Normally all of your input payments have been to manufacturers in India, and suddenly they all change the manufacturers in Bangladesh. In time that would trigger a question.”

Mr Evans said the “shot across the bow” for ANZ was the 2012 scandal in which HSBC paid a $1.9bn fine for money laundering breaches after its was caught banking for Mexico’s Sinaloa cartel and Colombia’s Norte del Valle cartel.

New rules brought in to govern bank balance sheets in the wake of the global financial crisis ultimately tipped the balance for ANZ in retaining the retail business in Asia.

ANZ attempted to secure a large base of retail customers in Indonesia's capital, Jakarta.

ANZ chief executive Shayne Elliot, who took on the top job in 2016, swiftly moved to unwind his predecessor’s strategy which was exposed to big changes in international capital structures under the Basel III rules.

The Basel III reforms, introduced in the wake of the GFC, resulted in banks being hit with new funding ratios and liquidity coverage ratios aimed at making them more resilient.

These new rules meant ANZ was forced to hold more capital to support relatively small international businesses, leaving the profitable retail bank adrift.

In response ANZ started cutting back, selling the retail business or closing branches.

It also moved to simplify its operation, with the institutional business shedding almost 20,000 clients.

ANZ sold its stake in its joint venture in Cambodia with the Royal Group in 2018, taking a $30m haircut on the deal in a bid to extricate itself from a bank that was throwing up major risks. These included a 2014 controversy over a loan financed by ANZ Royal Bank to a sugar company operating in the market that had been connected to child labour and forced evictions of landowners.

Even before Mr Smith assumed the reins, ANZ had been tinkering with its international exposure, selling off its African assets in 1993 before selling what was left of Grindlays Bank in 2000 in a $2.2bn deal with Standard Chartered.

ANZ’s Asian exposure hasn’t always proved popular back home. The bank’s decision to retain its footprint in Myanmar as it moved to wind down its presence in the country earned a rebuke in parliament.

Mr Evans noted that many bankers who joined ANZ during the Grindlays days were still with the bank.

ANZ has even gone back to India, acquiring an institutional licence “that continues to grow to this day”.

Mr Evans said ANZ’s growth in the preceding decade before it decided to exit its retail presence in Asia had seen the bank struggle to differentiate itself from local offerings.

“We needed to be successful,” he said. “Retail businesses, commercial businesses, private banking businesses across Asia really didn’t stack up for us.

“Could we ever achieve scale that would warrant staying here?”

Mr Evans said the unwinding of the Mekong Strategy started well before the bank decided to kill the name.

“I decided to remove the reference to Mekong Strategy, specifically because outside of ANZ and Vietnam and parts of Southeast Asia; it was a very ANZ-specific terminology,” he said.

“When you’re a wholesale bank, it’s really for people outside of ANZ.”

The author visited Hong Kong as a guest of ANZ