Tag: Asian Banking

ANZ Exits Asian Retail Banking Businesses

ANZ today announced an agreement to sell its Retail and Wealth business in Singapore, Hong Kong, China, Taiwan and Indonesia to Singapore’s DBS Bank. This continues its realignment of its business away from Asia, although ANZ will focus on running a world class Institutional Bank in Asia they said.

anz-picThe Retail and Wealth business being sold includes ~$11 billion in gross lending assets, ~$7 billion in credit risk weighted assets and ~$17 billion in deposits. In the 2016 financial year, the business accounted for  approximately $825 million in revenue and net profit of ~$50 million.

Most people currently employed in ANZ’s Retail and Wealth business will join DBS providing continuity for customers and greater opportunities for staff.

Sale price represents an estimated premium to net tangible assets at completion of ~$110 million. ANZ will take a net loss of ~$265 million including write-downs of software, goodwill and property, and separation and transaction costs. The impact is expected to be slightly higher in the first half of FY2017, but offset back to ~$265m in subsequent periods.

The sale is expected to increase ANZ’s CET1 capital ratio by around 15-20 basis points and is expected to be broadly EPS and ROE neutral.

The transaction is subject to regulatory approvals in each market with completions anticipated over the next 18 months progressively from mid-2017.

ANZ will focus on the Group’s core Asian business in Institutional Banking where it is ranked a top four corporate bank with a significant ongoing presence in 15 Asian countries and $43 billion in gross lending assets.

Commenting on the transaction from Hong Kong, ANZ Chief Executive Officer Shayne Elliott said: “Our strategic priority is to create a simpler, better capitalised, better balanced bank focussed on attractive areas where we can carve out winning positions.

“Asia remains core to ANZ’s strategy. This transaction simplifies our business while allowing us to continue to benefit from higher levels of growth in the region through a focus on our largest, most successful business in Asia – banking large corporate and institutional clients
driven by trade and capital flows particularly with Australia and New Zealand.

“By focussing our resources in Asia – whether that is capital, technology or people – on Institutional Banking, we can continue to build a world-class, capital efficient business by strengthening our network and the support we provide to our key institutional clients.

“In Retail and Wealth, although we have grown a profitable business in Asia, without greater scale ANZ’s competitive position is not as compelling.
“Having looked carefully at the business in recent months, it is clear the environment we face has changed and to make a real difference for our Retail and Wealth customers, we would need to make further investments in our Asian branch network and digital capability.

Further investments do not make sense for us given our competitive position and the returns available to ANZ,” Mr Elliott said.

The Case For Tighter Financial Integration In Asia

The IMF released a working paper “Drivers of Financial Integration – Implications for Asia” which is highly relevant given that deeper intraregional financial integration is prominent on Asian policymakers’ agenda despite the fact that financial integration lags behind trade integration and that Asian economies maintain stronger financial links with the rest of the world than with other economies in the region. The paper concludes that financial integration in Asia could be enhanced through policies that lower informational frictions, continue to buttress trade integration and capital market development, remove restrictions to foreign flows and bank penetration, and promote a common regulatory framework.

Ever since the Asian financial crisis, Asian policymakers have embarked in a number of initiatives to foster regional cooperation and financial integration. This drive has been motivated to a large extent by the desire to enhance resilience against the vagaries of global financial markets by developing a local-currency denominated bond market and beefing up regional reserves. The “Manila Framework” was developed in 1997 as a “ new framework for enhanced Asian regional cooperation to promote financial stability”. Other important steps toward regional financial integration include liquidity support arrangements through the Chiang Mai Initiative Multilateralization, the Asian Bond Fund, the Asian Bond Market Initiative, and financial forums such as the Association of Southeast Asian Nations Plus Three and the Executives’ Meeting of East Asia–Pacific Central Banks. The Association of Southeast Asian Nations (ASEAN) has also outlined plans to foster capital market integration, including by building capital market infrastructure and harmonizing regulations.

In spite of these efforts, though, the empirical evidence indicates that regional financial integration lags behind trade integration and that Asian economies maintain stronger financial links with the rest of the world than with other economies in the region.

This paper takes a fresh look at the status of financial integration within Asia and at possible factors hindering progress, focusing on portfolio investment and banking claims. More specifically, it attempts to address the following questions: how financially integrated are Asian economies within the region? Has Asia’s regional financial integration increased? And how does it compare to other regions? What are the drivers of financial integration? And, hence, what are the implications for Asian policymakers pursuing deeper regional financial integration?

To answer these questions we first review recent trends in the share of cross-border holdings of portfolio investment assets and bank claims within Asia compared to outside the region. Next, we estimate the home bias—that is, the tendency to invest more in one’s home country than abroad—in Asia and other regions. Then, through a gravity model, we study the main drivers of financial integration—focusing in particular on the role of regulations—and use the results to draw implications for Asia.

The paper finds that the degree of financial integration within Asia has increased, but remains relatively low, especially when compared with Asia’s high degree of trade integration. Moreover, financial linkages within Asia are less strong than those within the euro area and the European Union, but tighter than those in Latin America. The home bias is found to be particularly strong in Asia, limiting cross-border financial transactions within the region.

The gravity model estimates indicate that cross-border portfolio investment assets and bank claims increase with the size and sophistication of financial systems and the extent of trade integration. In addition, restrictions on cross-border capital flows, informational asymmetries, barriers to foreign bank entry, and differences in regulatory and institutional quality create obstacles to financial integration.

Hence, initiatives to advance Asian policymakers’ agenda toward deeper regional integration could include steps to further promote financial market development and trade linkages, and reduce informational asymmetries through increased financial disclosure and reporting requirements. Lowering regulatory barriers to capital movements and foreign bank entry, as well as harmonizing regulation, especially for investor protection, contract enforcement, and bankruptcy procedures, appear particularly important.

Note: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Pushing to Build Asia’s Biggest Bank

CEO Budi Gunadi Sadikin wants Indonesia’s Bank Mandiri to be the region’s largest. In this McKinsey interview, he discusses the consumer-banking explosion, the impact of digitization, and the grooming of future leaders.

Indonesia’s Bank Mandiri was formed in the late 1990s in response to the financial crisis that had gripped much of East Asia. Today, the 60 percent government-owned institution is Indonesia’s biggest bank, with much of that growth attributable to chief executive officer Budi Gunadi Sadikin, who joined Bank Mandiri in 2006 to head its retail-banking operations. Since becoming CEO, in 2013, he has continued to focus on digital consumer transactions, spearheading, among other things, efforts to make peer-to-peer money transfers as easy as sending a text message. In this interview, conducted by McKinsey’s Rik Kirkland, Sadikin explains how he’s preparing the next generation of banking leaders to manage the industry’s evolution.

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