Melbourne-based ANZ should continue its turnaround of results as its expansion into Asian markets looks set to deliver positive returns.
Despite seeing the same negative effects as other major Australian lenders due to the Royal Commission inquiry into financial misconduct, ANZ has found a way to turn a poor fiscal year around with smart investments elsewhere.
Forecasts predict a 5% revenue growth for the year due to ANZ’s performances in Asia. The bank is looking to dampen any fallout from the inquiry, which has already wiped significant value off many wealth and financial institutions.
Since looking to restructure its Asian operations back in 2016, ANZ’s streamlined approach is starting to pay dividends. Mark Whelan, Head of Institutional Banking, said that ANZ now has a clear focus on the institutional banking sector above all else.
ANZ has not held any stakes in retail banking since May when it sold off a 55% stake in ANZ Royal Bank of Cambodia to J Trust, a Japanese finance group.
The cost of selling off this stake at a loss should hit financial returns at the end of this fiscal year, as the deal closes out in early 2019. A loss of $AU30m will enable the bank to close this chapter of Asian retail bank investing and work on institutional aspects instead.
Since ANZ sought to pull out of Asian retail banks in 2016, Australia’s third-largest bank has written off $AU265m in losses as it sold stakes in banks across Singapore, Hong Kong, Taiwan, China and Indonesia. These stakes all went to DBS.
At the same time, these write-downs pale in comparison to the savings that ANZ was able to make as a result, which enabled it to take away risk-weighted assets (RWA) to the tune of $AU50bn. This worked out to about a quarter of all its RWAs.
Whelan said that these movements have “since generated $AU6bn in capital back to the group.” This was due to a twin intent of “Asian business restructuring” and “disposals of retail finance business in Australia.”
These moves were set to lead to between 4% and 5% “revenue growth each year from across all divisions in Asia,” meaning that ANZ could now focus on seeking additional growth through diversification and making inroads into areas such as transaction banking and financial markets.
Since the bank opted to write down many of its services benefiting small and medium enterprises (SMEs), Whelan noted that its “customer base has also been reduced by 7,000.” However, he does not expect this to be a major problem or a worrying trend.
Whelan continued to posture that ANZ is “getting more efficient in our use of capital to enable our businesses to generate that level of growth,” and it does “expect our return on equity would grow at an even faster rate.”
For the last full fiscal year, ANZ had an average equity return of 10% across its Asian institutions; however, this is likely to dampen in the next full year because of increased regulatory scrutiny and compliance demands, which include new liquidity requirements.
As institutional banking still makes up over a third of all ANZ investments, it has been growing its agricultural investments to diversify in recent months.