While most Australian banks are happy to grow organically in Asia, ANZ is actively seeking strategic partners, says Simon Montlake.
When it comes to cross-border activity, Australian banks have often tended to cast their gaze towards markets in Europe and North America. As a result, Australian bankers seemed to pay less attention to Asia’s diverse markets as they hunted elsewhere for growth opportunities.
Even the Asian financial crisis, which slashed asset prices and opened doors to new entrants, failed to elicit a big response from Australia. As foreign banks pounced on distressed financial institutions from Thailand to Korea, most Australian banks kept their distance.
One reason given by bankers was the amount of risk involved in committing capital to developing markets in Asia. Even the larger Australian banks lack the deep pockets of global players such as Citibank and HSBC for aggressive acquisitions in the region. Another reason has been the strength of domestic growth in Australia in the past three to four years.
Western slant
Indeed, many bankers were content to grow at home and keep their focus on developed Western markets, particularly in the UK where cultural and economic ties endure. That includes Australia’s largest lender, National Australia Bank (NAB), which has long sought to expand its UK retail operations that account for around one-quarter of group earnings.
NAB recently named John Stewart, ex-Barclays and former CEO of UK lender Woolwich, to head its European operations from August. Inevitably, this has rekindled speculation that the bank might make another bid for Abbey National or another UK bank.
However, NAB bankers deny that Asia has been overlooked in favour of the UK. They argue that steady, organic growth is their key to building a presence in the region. In practice, this means beefing up corporate and capital-markets operations, rather than grabbing the retail end of the market. Asia now accounts for around 7.5% of NAB’s corporate and institutional book.
“We’re comfortable with our position in Asia. We’ve building up our operations and we’ve put a lot of people into the business in the last 12 months. We’re growing at a rate that we want to grow,” explained Ian Scholes, executive general manager of corporate and institutional banking.
Other big Australian players, such as Westpac, have focused their energy on domestic operations and getting a bigger piece of Australia’s wealth management industry. Commonwealth, which has suffered its fair share of criticism over losses at home, recently signalled its interest in Asia through a joint venture wealth management company formed with a unit of powerful conglomerate Cheung Kong.
ANZ strides in
Meanwhile, in contrast to these cautious approaches, the determination of ANZ Banking Group to get its feet wet in Asian markets is noteworthy. In recent months, ANZ has set up a credit card joint venture with Metrobank in the Philippines, signed a co-operation agreement with a financial group in Shanghai and discussed taking an equity stake in Thailand’s sixth-largest bank.
This flurry of activity looks set to continue, as the bank’s goal is to raise its capital allocation in Asia to 10% – about A$1bn ($655m) – in the medium- to long-term. Yet only four years ago, ANZ seemed to be beating a hasty retreat when it sold Grindlays Bank, which operates across South Asia and the Middle East, to Standard Chartered.
Peter Hawkins, group MD of strategic development at ANZ, says that this was a turning point for the bank in terms of foreign operations. “We came to the conclusion that operating as a niche foreign bank in these markets isn’t a successful model. It’s better to invest in a domestic bank with a franchise that needs a foreign strategic partner,” he says.
Around the same time, ANZ got its first toehold in Indonesia when it bought an 8% stake in Bank Panin, one of the few private banks to survive the 1998 financial meltdown. ANZ has since injected more capital to bring its stake up to 30%.
Last year, ANZ and Panin launched a joint bid for Bank Niaga, an offer that was eventually trumped by Malaysia’s Bumi-Commerce Bank. To Mr Hawkins, ANZ’s partnership with Panin proves the value of growing in Asia from within, rather than holding on for blockbuster buys that offer majority control.
“Because these are such unfamiliar markets to us, our sense is that we need to find a good partner that really wants us, that has what we don’t have,” he tells The Banker. “What we’re looking to do is operate as a domestic bank with someone who’s got the domestic franchise.”
One bank that may fit the bill is Thai Military Bank (TMB), which is looking for new investors to rebuild its capital base. TMB approached ANZ earlier this year, offering to sell up to 20% of equity as part of a planned Bt60bn ($1.4bn) capital increase.
Bankers in Bangkok say TMB would first need to carve out a big chunk of bad debt if it is to find a buyer, as its provisioning lags behind other lenders. Fitch estimates TMB’s net loan loss reserves at 25% of total non-performing loans, compared with 60% at stronger Thai banks.
This looming capital shortfall is forcing TMB’s hand, with a quiet nudge from central bankers who want to shore up the country’s sixth-largest lender with Bt390.8bn in assets and 363 domestic branches. Analysts say another Thai lender with a capital shortfall, Bank of Ayutthaya, looks certain to require fresh capital this year.
“Many banks still need to raise capital and deal with the overhang of bad loans, and they may look to bring in institutional investors that can strengthen the bank. Clearly it should be beneficial to have a strong foreign investor who can provide assistance on the banking and technology side,” says Vincent Milton, managing director of Fitch Ratings Thailand.
Unwilling shareholders
One complication is TMB’s shareholder roster, which includes Thailand’s military and the Ministry of Finance, neither of which seems as willing to inject more capital, except in the last resort in the case of the ministry. Bankers say that serious questions still remain about TMB’s interim board and whether a bad loan clean-up is the answer. “The key problem isn’t the asset side, it’s the quality of management,” says a foreign banker in Bangkok.
Mr Hawkins declined to comment to The Banker on talks with TMB. Analysts point out that ANZ may be more interested in advancing its co-operation accord with Shanghai Rural Credit Co-operative Union, particularly in the wake of Citibank’s recent $72m investment in Shanghai’s Pudong Development Bank, a rival to ANZ’s potential partner.
