After pursuing a strategy of investing in less-developed Asian markets, ANZ is set to enjoy the fruits of its labours as these markets grow. Virginia Marsh reports.

It was all systems go at ANZ last November when the Australian bank found itself bidding against private equity groups for a stake in AMMB, one of Malaysia’s top banks.

But within days of the talks going public, the Melbourne-based bank had scooped up a 13.5% stake. The following week, it secured a further 11.4%, bringing its stake to 24.9%, for a total outlay of A$833m ($717m).

The dénouement may have been sudden but it marked the end of a long courtship. ANZ had first held discussions with AMMB some seven years earlier and had been in intermittent talks with the Kuala Lumpur organisation for three years.

The deal is an important part of the patchwork of investments that ANZ has patiently stitched together from China to Indonesia over the past eight years, at an upfront cost of some A$1.4bn.

Starting with an investment in Indonesia’s Panin Bank in 1999, ANZ now has a credit card joint venture in the Philippines; investments in two city banks in China; a controlling stake in a start-up bank in Cambodia; and strategic holdings in banks in Laosand Vietnam – and now Malaysia. It has agreed to buy a 10% stake in Vietnam’s Saigon Securities for $88m.

Regional clout

As a result, ANZ punches well above its weight in the region. Although globally it is only a top 100 bank, it believes it is in the top 15 in terms of international banks in Asia, behind global giants HSBC and Citi and regional specialist Standard Chartered.

“Despite a lot of banks supposedly being interested in Asia, show me the number of banks that actually have a significant footprint,” says Bob Edgar, ANZ’s senior managing director and the executive overseeing the Asian investments.

The expansion into Asia has been the brainchild of John McFarlane, the Scottish-born former Citi and Standard Chartered banker who has led the Melbourne-based bank since late 1997. A regional specialist, having previously been based in Hong Kong, Mr McFarlane arrived just as the Asian financial crisis was engulfing the region.

With ANZ, for a long time the most international of Australia’s big four banks, the most exposed to emerging markets, his first step was to ‘de-risk’ the organisation. This involved re-focusing the bank on its domestic business, taking advantage of the strong growth in Australasian markets at a time when many Asian economies were in deep recession. It culminated in the sale of Grindlay’s, the bank’s India-based subsidiary, to Standard Chartered for A$2.2bn in 2000.

At the same time, ANZ began to re-expand into the region but on a more strategic basis. Recognising that it lacked the firepower – or investor backing – to compete with the global giants on large-scale acquisitions, it has targeted ventures where it can bring its strongest areas of expertise to bear directly. These include, for example, areas such as credit cards, small and medium-sized business banking and retail.

Sometimes, as with its investments in China, in Shanghai Rural Commercial Bank and in Tianjin City Commercial Bank, ANZ holds stakes in the parent organisation, in these cases 19.9%. In others, it has a stake in a specific business, such as its 40% share in a credit card venture in the Philippines with Metrobank. While the bank’s new regional strategy is very different to its former ambitions, Mr Edgar says the bank’s historical presence across Asia has been “critical”.

Relationships

“Part of what builds your success in Asia is persisting at it over a long period of time. In Asia, relationship is very important,” says Mr Edgar. “You are far more likely to be received, to be given permission by the regulator if you can demonstrate that you’ve had a longstanding relationship and that you understand local needs and have a cultural capability of operating in those markets.

“We started banking in Asia in the 1960s. You can’t reproduce that. If you suddenly decide that you want an Asia presence, there’s an awful lot to learn.”

While the bank would prefer to have larger stakes in many of its Asian ventures (in most cases, it is limited by local regulations), he says that being a minority partner is very workable and a good first step.

“We do want a stake that makes us a serious player in the bank. But people get a bit hung up on equity control and percentages. Frankly we want to look through all that,” says Mr Edgar. “A shareholder’s agreement can be equally important, not just equity control. If you’ve got to get down to counting the votes around the table, the partnership is over.

“We’re quite patient. We’re sensitive to the evolution that has to go on, where people become more comfortable with greater foreign investment in domestic banks.”

The hardest element of managing the Asia investments, he says, is establishing the partnerships in the first instance. “The most important thing is to convince the partner that we are a serious long-term player and that we can add value to them. Most of our partners don’t need capital. They can source capital from a number of sources. What is not so easy to source is knowhow.”

But as ANZ forges new partnerships in the region, it can now point to its track record. Credit cards have been a particular area of focus and potential. As well as the Metrobank venture, ANZ manages the cards businesses of Panin in Indonesia and Sacombank, its Vietnamese partner.

“Credit cards across Asia are massively underused,” Mr McFarlane told an investor briefing earlier this year. “With individual wealth and consumerism on the rise, it’s a huge opportunity, not lost on American Express and the other major card firms. But frankly, we’re as good as they are.”

In the Philippines, the partnership with Metrobank has transformed a business that lagged well behind the market leaders to take second place in just three years.

By last year, the venture had 750,000 cards on issue, up from 220,000 in 2003 when the partnership was formed. Over the same period, delinquencies fell by 19% while the business achieved a compound annual growth rate of 36%.

“It’s all to do with credit card scoring, all to do with receivables management and all to do with marketing techniques,” says Mr Edgar.

Nevertheless, the bank’s portfolio of investments across the region has yet to generate significant financial returns. In the half year to March, it produced net profits of just A$25m, up 32%, although the bank hopes it will generate A$300m-A$400m a year by 2012.

Growing economies

This growth is set to be driven by the strong expansion of the region’s economies, which are now outpacing Australia and New Zealand by a large margin, in contrast to when the bank first formulated its Asia strategy.

The other key reason for the Asia strategy is to differentiate ANZ from its peers, something that analysts and investors have begun to value.

“In our view, ANZ’s Asia strategy is unique,” says Craig Williams, an analyst at Citi in Sydney. “It has chosen to focus on markets at the early stages of their lifecycle. Rather than compete as a niche foreign bank in these markets, its approach has been to partner with local banks that have an existing customer franchise.

“Local banks need help to modernise, and ANZ brings capability and experience,” he adds. Such views contrast with the negative reception the Asia strategy once received. In 2003, ANZ abandoned putative plans to invest in Thai Military Bank after its own share price plunged on news of its interest. Now, there is recognition that the bank has a good portfolio of investments in the region, many of which would cost several times more to create today.

“A burgeoning Asian presence will be a medium-term revenue driver for ANZ versus the other Australian banks,” says Mr Williams. “Other banks will have difficulty replicating ANZ’s platform.”

Either way, the bank looks set to continue its expansion into Asia. In June, it appointed Michael Smith, the head of HSBC’s Asia operations, to succeed Mr McFarlane as group chief executive later this year and in July it acquired a 10% stake in Vietnam’s Saigon Securities, for $88m. This will complement the bank’s existing investment in the country, its 10% holding in Sacombank.

Building on success

While ANZ has said it is unlikely to invest in banks in more developed markets such as Japan, Singapore and Hong Kong, it is keen to expand further in the Philippines, building on the success of the Metrobank venture, and in Thailand.

A strategy for India will also be among the new top team’s priorities. ANZ has entered a tender for a credit card partner for Punjab National but, more broadly, it considers there are several barriers to entering the local market. These include the limit of 5% for foreign investors in banks and some ‘formidable’ local competitors.

“We struggle with the idea of a 5% stake being a partnership and equalling significant influence,” says Mr Edgar. “While we see the attractions of India, we find the partnership opportunities hard to understand.”

PLEASE ENTER YOUR DETAILS TO WATCH THIS VIDEO

All fields are mandatory

The Banker is a service from the Financial Times. The Financial Times Ltd takes your privacy seriously.

Choose how you want us to contact you.

Invites and Offers from The Banker

Receive exclusive personalised event invitations, carefully curated offers and promotions from The Banker



For more information about how we use your data, please refer to our privacy and cookie policies.

Terms and conditions

Join our community

The Banker on Twitter