ANZ’s (ASX: ANZ) global head of transaction banking has rejected concerns that turmoil in the region will generate a plethora of bad debts. Speaking to The Australian Sameer Sawhney said that “the withdrawal of ‘easy liquidity’ from local markets to developed nations like the US would affect banks throughout Asia.”
Mr Sawhey did however say that the idea of slowing growth was overplayed and despite the uncertainties there’s still plenty of growth to tap into: “Yes, there are challenges, whether it’s currency, political uncertainty in terms of the elections coming through, but we still have clients talking growth.”
ANZ’s ‘Super Regional Strategy’ is unique amongst Australian banks because it is focused on competing with local banks in the region whereas, for example, Westpac’s (ASX: WBC) Asian strategy is focused on taking advantage of trade flows to and from Australia. ANZ hopes to generate between 25% and 30% of group revenue from its strategy by 2017.
Some analysts were quick to criticise ANZ’s leap into Asia because it involved creating many loans on thinner margins and already established local banks, as well as large foreign banks, would have the first mover advantage. Mr Sawhney, who is based in Singapore, said, “I haven’t seen any big challenges coming through in our portfolio or what we have in the market.” However last month ANZ announced its net interest margin was to be 20 basis points thinner as a result of low interest rates and competition.
Asian markets have encountered large amounts of volatility in recent times as a result of the US’s tapering of its quantitative easing program. Already we have seen bond prices rise throughout much of world, including the US. As a result, more money is expected to move from developing nations into ‘safer’ bond markets in the near future. According to the Wall Street Journal, “Improving sentiment toward bonds is boosting investors’ appetites for new debt supply.”
The RBA has recently become concerned about Australian banks’ exposure in Asia, particularly as a result of “higher yields and depreciating exchange rates on inflation and financial stability” take a hold on markets. However, ANZ CEO Mike Smith said “the volatility… is actually reducing and the quality of credit is increasing.”
ANZ has made calculated risks in Asian markets and its international and institutional banking divisions’ revenues are rising. Any significant drop in ANZ’s share price could make for a good buying opportunity although at current prices, it might be best to wait for the yield rush in equities to pass before committing to a purchase.
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Motley Fool contributor Owen Raskiewicz does not have a financial interest in any of the mentioned companies.