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October 20, 2008updated 04 Apr 2017 1:14pm

ANZ looks to break China

ANZ, which has just been given a full banking licence in Vietnam, has elaborated on its strategy for the Chinese retail banking market Alex Thursby, ANZs new CEO for the Asia-Pacific region, spoke to William Cain about plans to increase the banks earnings from markets that include Malaysia, Cambodia and Indonesia. Australia & New Zealand Banking Group (ANZ), Australias fourth largest financial services group, has turned its attentions to incorporating locally in China after being granted a banking licence in Vietnam.

By William Cain

ANZ, which has just been given a full banking licence in Vietnam, has elaborated on its strategy for the Chinese retail banking market. Alex Thursby, ANZ’s new CEO for the Asia-Pacific region, spoke to William Cain about plans to increase the bank’s earnings from markets that include Malaysia, Cambodia and Indonesia.

ANZ-Asia-Pacific as a % of group earningsAustralia & New Zealand Banking Group (ANZ), Australia’s fourth largest financial services group, has turned its attentions to incorporating locally in China after being granted a banking licence in Vietnam.

Alex Thursby, recently appointed CEO of ANZ’s Asia-Pacific business in a shake-up of senior management, told RBI he was “exploring the role that local incorporation in China would play in ANZ’s growth strategy in Asia”. The bank is aiming to be a top-four bank in Vietnam and has targeted a place among the top four foreign-owned banks in China by 2012.

Local incorporation allows banks to operate own-branded branches and offer their full range of retail banking products in domestic currencies. In Vietnam, the licence gives ANZ the option to establish four ANZ-branded branches and transaction offices which would serve the domestic retail banking market. HSBC and Standard Chartered have also recently set up shop in the country (see RBI 598).

The benefits of local incorporation

Local incorporation in China would allow ANZ to offer local currency denominated debit cards to Chinese retail banking customers under its own brand, in addition to the renminbi and foreign currency services it currently provides to corporate customers. The bank’s main retail banking exposure in the country at present comes from the two banks it holds 20 percent stakes in: the CNY128 billion-asset ($18.6 billion) Shanghai Rural Commercial Bank; and the CNY100 billion-asset Bank of Tianjin. But unlike HSBC – through Bank of Communications – and other foreign rivals operating in the country, ANZ does not have any co-branded debit and credit card offerings. Issuing co-branded cards with partners is seen by foreign banks as a way to build a customer base prior to a full-scale launch in the market.

China and Vietnam are seen as strategically important by Thursby. Former ANZ CEO John McFarlane said in 2006 the bank would look to lift its proportion of Asia-Pacific assets from around 10 percent to 25 percent “and take it from there”. But since then its assets in the region have actually declined, to less than 10 percent of its total loans and advances.

Mike Smith, appointed chief executive in late 2007, formerly at HSBC, has redefined the bank’s push in Asia-Pacific, moving away from the focus on assets. The bank’s revised target is to generate 20 percent of earnings from Asia-Pacific by 2012, up from the current 10.9 percent. Of the A$182 million ($127 million) profit made in Asia-Pacific in the first half of 2008, 36.6 percent came from its operations in the Pacific Islands, including Fiji, Papua New Guinea and the Cook Islands.

ANZ’s strategy in the region is to build on the strengths of its credit card and mortgage business units. It also wants to develop its wealth management proposition, targeting the affluent customer segment. Thursby said: “We are focused on providing retail products and services of global quality for affluent customers in the large cities of franchise-significant markets like Indonesia, Vietnam and China. While our strategy is to provide services and products across the total customer wallet, there will be some differences in products between markets based on the needs of our local customers.”

As part of this emphasis on affluent customers, the bank recently created a global wealth management division. The venture, for which no commencement date has been set, is aimed at complementing the bank’s ambition to be a super-regional bank (see RBI 595).

Thursby said the group has the ability to build a strong credit card business in Asia, proved by joint ventures it has already carried out in the Philippines, through its Metrobank Card Corporation – in which it holds a 40 percent stake – and Indonesia, through ANZ Panin Bank, with a 30 percent stake. He plans to have 10 million credit cards in issue in the region by 2012, compared to the current 1 million.

He told RBI: “We will seek to bring the right balance of standardisation as we build out our credit card business in Asia, focusing on Indonesia, Vietnam and China. Standardising our processes and systems brings efficiency and sustainability; it is important to deliver consistent and improved service to our customers.”

Australian banks have for a long time ignored the opportunities on their Asia-Pacific doorstep, preferring instead to look to European markets or, recently, their domestic market. National Australia Bank (NAB) makes a negligible amount of its income in Asia. But it does own Clydesdale and Yorkshire, two small banks in the UK, which generated A$311 million – 13.9 percent of profit – in the half-year ended 31 March 2008.

A relative bargain

Commonwealth Bank of Australia (CBA) has operations in New Zealand, Fiji, Japan, Vietnam and Indonesia. But Australia and New Zealand made up 98.6 percent of the group’s half-year profits – and CBA recently bought Australian rival BankWest, the seventh-largest bank with around 110 branches and A$54 billion in assets, from the UK’s troubled HBOS Group for a relative bargain of A$2.1 billion.

And while Westpac, which recently acquired St George to form Australia’s biggest bank by assets (see RBI 592), is generating an increasing share of its earnings outside of its Australia and New Zealand markets, Asia still contri- butes only a small part of the bank’s overall earnings and is focused entirely on its Pacific Islands business, which has 52 branches, mainly in Tonga and Fiji.

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