But we have evolved and expanded over almost 140 years – our first branch served the Gold Rush in Bendigo.
“As we come out of this crisis and the loans start to free up, there is always an increased risk. And it comes back to the core bank that we think we have right now.”
And for this entire century and a half, ANZ has facilitated trade and money flows globally, especially in the Asia-Pacific region. It is in the DNA of ANZ and in particular of our institutional banking activity.
Today we deal with multinational companies in the 33 markets in which we operate and beyond. Our clients also include other financial institutions and we provide them with the platforms to make payments and foreign exchange transactions. In fact, we dominate the Australian dollar and kiwifruit trade in the region.
During this time, and especially the past decades, we have seen our footprint in Asia expand and at times contract as we respond to market and economic pressures. But essentially our business has always been trading and helping our customers, including smaller and smaller businesses, to grow in the region.
Whether you look at the network we acquired with Grindlays in the 1980s or the expansion under Mike Smith at the turn of the century when there was retail banking, the essence was trade and financial flows.
We have obviously rationalized, particularly around retail banking where we did not have a competitive advantage, but we have developed the institutional activity and the products and services that we offer to SMEs.
Now, this network and this clientele constitute, in our opinion, a competitive advantage. It sets us apart, especially from other Australian banks. Today when you look at the global economy and in particular the Asian economies which are starting to rebound after COVID-19[female[feminine, we are seeing this benefit manifest.
Initially, when the crisis hit, we effectively undertook a year of loan in a month – customers wanted security, they just wanted that cash on hand, as a fallback. Now almost all of that has turned around. Within months of the onset of the crisis, as governments and central banks reacted – and we believe were managing the economy very well – liquidity returned to the system. Capital markets have reopened again. So people are refinancing at very low rates.
Now I think we are entering a different phase. GDP growth is expected to continue around the world. China is aiming for 9%, US 6 and Australia 5. Other Asian countries are expected to experience even greater growth, even most European countries will expand.
We haven’t seen this kind of synchronized alignment of global growth for a very, very, very long period of time. So there will be demand. It is early days but we have already started to see growth manifesting itself a little more recently.
If you look at M&A activity, IPO activity, we’re looking at about 50 deals around the world right now. We’re not going to be involved in all of this, but we can see the amount of activity that is happening.
Some of them are well advanced, others are just ideas. But bank financing will be involved in many of them (not all). Normally what you see is the banks would provide good underlying core loans, and then you have mezzanine financing, obviously equity investment. But there is no lack of liquidity to curb these transactions.
This is important and if the rates are kept as low as we hear for an extended period then you are going to continue to see this kind of activity. So I think over the next 12 to 18 months there will be a lot more activity.
I think another sign of this health is the money pouring into the investment funds and those investment funds are hiring and they will be trading. So that everything is reflected in the outlook for future activity.
What does this mean for the banks? This is positive, but these are the times when we also have to be careful. As ANZ ranks in the top three in the region for debt, capital markets and syndicated loans, we have good market transparency.
With interest rates where they are and liquidity around, the cost of capital has come down. How long rates stay low depends on a number of factors, including the outlook for inflation.
We expect credit spreads, due to the amount of liquidity and the desire of banks to compete with each other and other entities, non-bank lenders, to compete with each other, will remain low for some time. Base rates will remain lower. Money, for at least two or three years, will remain cheap.
So for the banks, the margins will remain competitive, and that’s a good thing for the economy. Banks just have to manage their books on that basis and they should. What has happened in other cycles – and what we wouldn’t want to see – is when competition infects risky environments and we start to see alliance structures, security, loosen up. . This is when you get into trouble.
The other risk that always emerges, and we are already seeing this play out, is the danger of concentration. Whether it is our own clients and regional exhibitions or those of our clientele, you should be aware of concentration risk.
From a purely banking perspective, one of the things we are doing – and more than ever – is to seek to diversify our risks as much as possible. We encourage our customers to do so, whether in the supply chain or at their own customers to whom they sell. This is the best way to mitigate the risks. If you depend on one or two large clients or regions and there is a weakness there, it can put pressure on your entire business.
I’ve seen this many times in my career, going back to the Australian recession in the 90s with both Westpac and ANZ or the Asian crisis or the dot-com bubble.
Unfortunately, over the years ANZ Institutional Bank has made some serious mistakes and we have had to work very hard with our investors to demonstrate, over a period of time, that we have learned from them in order for the company to receive value. that we believe she has.
As we come out of this crisis and the loans start to free up, the risk is always increased. And that goes back to the core bank that we think we have right now.
These are the principles of, First, Know Your Customer, KYC Core. Second, make sure you have the answers, you’ve asked all the right questions. With leverage comes risk, it’s obvious, so do you understand leverage? Do you really understand the underlying asset?
If you manage your leverage, you know your client, you have diversification, you know your responsibilities, this is the very essence of a successful institutional bank. This is the kind of bank that ANZ is today.
Mark Whelan is Group Executive Institutional at ANZ