ANZ’s delicate balance in Asia

The past 18 months has been marked by a flurry of activity at Australia & New Zealand Banking Group (ANZ), one of the ‘big four’ banking groups down under and according to Diana Brightmore-Armour, its UK and Europe chief executive officer (CEO), “the most international of the Australian banks – and the most Australian of the international banks.”

Under Shayne Elliott, who joined as a managing director eight years ago and was promoted to the group’s CEO at the start of 2016, ANZ has scaled back its empire building in Asia. Last October, it announced the sale of its retail and wealth management businesses in five countries across the region – China, Hong Kong, Indonesia, Singapore and Taiwan – to Singapore’s DBS Group Holdings. The move was in direct contrast to ANZ’s policy of expansion in Asia pursued by Elliott’s predecessor, Mike Smith.

At a recent breakfast roundtable in London that she hosted jointly with Helen Mason, ANZ’s corporate and transaction banking head for Europe, Brightmore-Armour said that Elliott’s strategy was focused on three “key transformations” of the group, financial, digital and cultural.

The exit from ANZ’s retail and wealth management business in some Asian markets and a sharp reduction in its risk-weighted assets were recognition that ANZ needed to be smaller and better capitalised, said Brightmore-Armour. Reports suggest that ANZ’s overseas operations used up one third of its capital but generated less than 20% of profit. In the UK and Europe, the group has reviewed its client base to identify those not providing reasonable returns.

“The big multinationals recognise that lower fees and smaller margins mean that banks are making less money,” added Brightmore-Armour. “There is a trade-off, as they want to have fewer banks but need some regional banks.”

On digitisation, ANZ is keen to dispel a ‘myth’ that it should be confined to the retail side and innovations such as ApplePay. It has a digital plan for its institutions, which extends beyond just cost-cutting. Asked what corporate clients require of digitisation, Brightmore-Armour suggested that often it was simply banks providing efficient products for both reliability and speed of transaction such as the example of a cash-rich US multinational which is looking to ANZ to assist their digitisation by delivering banking automation to their international trade and capital flows.

“Other institutional clients have been keen to know what digitisation can provide for them as trade processes are still very manual and paper-based. They particularly like ANZ’s ability to provide ‘umbrella’ agreements develop that can cover numerous trades across a number of geographies.

Onboarding and innovation

The concept of a central know-your-customer (KYC) registry has so far proved too difficult to realise; in part because individual banks are reluctant to rely on others to verify information and are very mindful of the huge potential repercussions should the process be mismanaged.

“However, on the retail side it’s now much easier to switch banks than it was five years ago and the same should happen next on the institutional side,” added Brightmore-Armour. Cost continues to present an obstacle though. “Banks are now in an era of lower fees and lower profit margins, so revenues are down but the cost pressures remain significant.”

These costs include investment in financial technology (fintech) development, which is persuading both ANZ and its peers to enter more partnerships. Earlier this year, the group announced that Google Australia’s CEO, Maile Carnegie, had joined as ANZ’s new head of digital banking and Elliott has flagged up future partnerships with fintechs and regtechs to spread the cost.

ANZ also has a Singapore-based innovation lab, which is focused on digital solutions for corporate and institutional clients. The bank is also working on the launch of a revamped real-time payments platform in Australia later this year. While Australia was ahead of many countries in adopting electronic payments, the infrastructure behind several of the systems is in need of modernising.

Future potential

Despite recent retrenchment, ANZ is keenly aware of Asia’s potential. Already responsible for generating 40% of global gross domestic product (GDP), the region is expected to deliver nearly two-thirds of economic growth over the next few years.

“One of our multinational clients still has their treasurer for Asia based in Europe – surely something that can’t continue much longer as the region becomes steadily more important,” said Brightmore-Armour. While trapped cash is a long-established problem for companies operating in China, she noted that greater liberalisation has seen the country’s rules change regularly with a recent further easing of restrictions.

In addition, while foreign banks have established a footprint in China collectively their market share accounts for no more than 2%. ANZ has seven branches in China, of which Shanghai is the biggest. Mason described the group’s strategy is ‘on the ground support’ and receptive to both China’s culture and regulation. “We speak to the regulators regularly and ensure that we respond quickly to regulatory changes, particularly as our European Head Quartered clients look to ANZ for country expertise..”

As regards to the region’s other economic powerhouse, India, corporates have been finding life easier since Narendra Modi took office three years ago in what has traditionally proved “a hard market to penetrate”, despite the UK’s historic ties with the country.

“Regulation has tended to take a nationalistic approach, contrary to the general trend to greater globalisation,” said Brightmore-Armour. “If you’re a bank you can’t ignore regulation and it will be interesting to see if digitisation helps in reviving the globalisation process.”

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