BEHIND THE NUMBERS: Balance and diversification lead the way

Those decisions had us in a strong position to navigate – and help our customers navigate – challenges like the COVID-19 pandemic and now rising global interest rates and recent tremors in international banking.

“Diversification is more important than ever and ANZ is now reaping the benefits. The international business contributed nearly 60 per cent of the overall institutional revenue growth this half.”

Returns for ANZ’s institutional business were well above the cost of capital in the half as the slimmer division produced a record half-year result with significant revenue gains in all regions and across all products.

This is not a story about one division having a stellar result and covering for volatility in other business units. It reflects a well-balanced business primed to take advantage of trade and capital flows in the region.

Institutional contributed $1.6 billion to group profit. Revenue was up 23 per cent half-on-half or 35 per cent year-on-year as the division continued to focus on payments processing and servicing of other financial institutions. There was rapid growth in payments processing, including New Payments Platform agency payments, and platform cash management accounts also grew.

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The results were also helped by good margin management, a rebound in our markets business and a record result for the international business.

It was also a balanced result. Our three product pillars – markets, corporate finance and transaction banking – produced roughly a third of the revenue each.

In the markets business, a key contributor to the broader ANZ result, revenue jumped more than 50 per cent in the half, driven by strong results from foreign exchange, rates and debt capital markets.

Diversification

People often say you can’t shrink to greatness but the opportunities that come from operating a more focused, less risky business cannot be underestimated – particularly when the business spans more than 20 major markets around the world.

It allows you to focus on the right customers, the right markets and the right transactions without trying to be all things to all people.

ANZ’s institutional division delivers this focus, while providing diversification in terms of products and geographies for the broader ANZ group. It is an important point of difference compared with our local peers. Moreover, we can provide global insights and expertise to benefit our clients.

Diversification is more important than ever and ANZ is now reaping the benefits. The international business contributed nearly 60 per cent of the overall institutional revenue growth this half – making it one of the strongest performers in the group.

Well balanced

One of the other benefits of running a leaner business is it presents fewer concerns at times of global market volatility, like we have seen in recent months.

In fact, rising interest rates globally were a tailwind for our payments and cash-management (PCM) business. We’ve invested heavily here to deliver services to customers, including payments and collections, information management, account and clearing services, and liquidity management.

We built up the PCM business at a time when interest rates were low globally and returns from such businesses were challenging. Margins were tight. But we saw a market opportunity and had faith in our teams to focus on the long-term strategy and execute in a disciplined fashion.

This half, the PCM business posted increased market share and improved margins. As interest rates rose around the globe, it improved the returns on deposits we held. We were successful in tenders to provide payments and clearing services for domestic and international players – many times becoming the provider of choice to other financial services companies.

Banking other banks

Part of ANZ Institutional’s core strategy is to focus on providing PCM services to other financial services companies. This business is growing rapidly. New Payments Platform agency payments increased 31 per cent year-on-year while platform cash management accounts were up 32 per cent.

Payments & currency processing

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As well as new revenue, this has the added benefit of improving the overall credit quality of ANZ Institutional’s lending portfolio because other banks tend to have a prudent approach to risk and financial management.

Lowering the overall risk of the portfolio has been key to improving the financial returns from the business in recent years.

At the same time, we have been reducing the number of customers we deal with from about 20,000 to 7,000 while ensuring new relationships are made with the most secure and financially stable companies. It’s no good having many customers if it’s hurting the overall profitability of the unit.

On track for net zero

These customers also need to be taking their net-zero ambitions seriously.

In terms of new growth opportunities, ANZ Institutional continues to pursue our sustainable finance goals, including helping our customers make the transition to a low-carbon economy. In the first half of the financial year, ANZ participated in 56 sustainable finance deals worth $75 billion, broadly comparable to prior half against the backdrop of volatile macroeconomic conditions.

What we do in this area is crucial and will make a difference as the world focuses on reaching net zero emissions by 2050. We’ve set ourselves a new $100 billion social and environmental sustainability funding goal by 2030.

Our existing target to fund and facilitate at least $50 billion in sustainable solutions for our customers by 2025 is already well ahead of schedule, reaching $47 billion in the half.

At ANZ Institutional, we know we can’t be complacent and must remain focused. Market conditions for the rest of this financial year may be less favourable as some of the tailwinds we’ve experienced recently fade.

But the benefit of running a lean, focused and secure business is we can face into these challenging times and continue to support our customers from a position of strength.

Mark Whelan is Group Executive, Institutional at ANZ