ANZ chief Mike Smith unfazed by China exposure

ANZ chief Mike Smith has moved to play down concerns about the bank’s loan book and exposure to China.

ANZ CEO Mike Smith says China only accounts for 3 per cent of total outstandings.

ANZ chief Mike Smith has moved to play down concerns about the bank’s loan book and exposure to China, assuring the market it was “very high quality” and any problems could be easily handled.

“China only accounts for about 3 per cent of our total outstandings as a group, which is very small,” he said in an update on its Asian portfolio yesterday.

“The significance of that is that 88 per cent of our exposure to China is of a tenor of less than one year which ... means that should there be issues, our ability to reduce our exposure is very straightforward.

“I am absolutely not worried about our China exposure. It’s actually much higher quality than the rest of Asia.”

The comments come amid growing concerns about the pace of China’s slowdown as ANZ prepares to rule off its full-year financial accounts this month.

Investors are worried about the bank’s loan book after its third-quarter bad debt charge rose to $367 million, or 25 basis points of gross loans, partly due to problems in the mining and agriculture sectors.

ANZ has flagged a full-year impairment charge of $1.2bn, or 21 basis points of loans, up from 19 basis points in 2014, and analysts are concerned rising interest rates in the US will increase pressure in emerging Asia as conditions tighten and capital outflows increase.

Despite ongoing attempts, ANZ has also struggled to convince the market that its Asian strategy has gradually become less balance sheet-driven and more focused on servicing top-end institutional clients, and short-term lending.

Yesterday, ANZ said its exposure at default to China was $26.1 billion, or 3 per cent of the group’s total, $9bn of which is onshore. More than half is to financial institutions, mostly the major Chinese banks.

Ahead of ANZ’s presentation to a CLSA conference in Hong Kong this week, Mr Smith said: “Compared to where we were pre-crisis we look like a very different bank. We have a very strong balance sheet, a very good credit book and a very good capital position.

“The alternative in terms of the institutional bank is to look for growth in Australia at a much higher risk. We have not done that, and the credit quality of the group is better than ever.”

Mr Smith, the architect of ANZ’s super regional strategy, was quoted on the bank’s website saying China had made some errors on policy but still had a lot of options open to address its issues.

“The hysteria that emanated around China’s slowdown is very much overblown,” he said.