According to the Australian Prudential Regulation Authority, ANZ (ASX: ANZ) has capped off its financial year with a 7.1% increase in its home loan portfolio, closing the gap on its rivals.
As its ‘Super Regional Strategy’ encounters volatility and smaller margins in Asia, the bank has taken the past few months as an opportunity to open its doors to more mortgage exposure. Its peers, however, have lagged Australia’s fourth biggest mortgage lender. NAB (ASX: NAB) and Commonwealth Bank (ASX: CBA) grew their books by only 5% whilst Westpac (ASX: WBC) continued to struggle with only 2.7% growth.
In 2007, CEO Mike Smith implemented the ‘Super Regional Strategy’ to focus on tapping into developing Asian countries’ need for finance. By 2017 the group hopes to draw 25-30% of revenues from the region. However, increased volatility in world markets, competition from other foreign banks, a revival of the US economy and chances of QE tapering have slimmed margins in the region.
Having diversified its business across Australia, New Zealand and Asia gives ANZ the ability to transition its focus and drive revenues from any one of its markets. When Asian markets underperform, it has the ability to draw more revenues from Australian and New Zealand markets. Now we are seeing tighter lending conditions in New Zealand so the focus is on our market, particularly mortgages, where ANZ has plenty of room to grow.
Whilst ANZ may still be far behind Commonwealth and Westpac in terms of home loan market share, its presence in Asia allows it to take advantage of trade flows and compete with local banks throughout that region as well. This means that it, when compared to its Australian peers, has potentially the greatest upside for investors in each market.
However, many seasoned investors have seen it all before. Australian institutions have ventured overseas many times and come back beaten and bruised. Both NAB and Insurance Australia Group (ASX: IAG) know that feeling too well.
With strong foundations laid here in Australia, ANZ is the bank most likely to outperform its peers in coming years. Low interest rates in Australia mean the banks, which are heavily leveraged on mortgages and don’t have the ability to tap into foreign markets so easily, will experience growth at a slower pace.
Investors thinking of purchasing ANZ shares should consider the timeframe in which they plan to invest. Less than a year ago its stock price was around $23.50 and, at that price, was a bargain. With interest rates so low in Australia and new lending rules in New Zealand, ANZ could prove pricey in the short to medium term, but in the long term, with dividends hovering around 5%, it is likely to perform well for investors. In this Fool’s opinion, your portfolio deserves only the best so ANZ is a hold.
There are still plenty of stocks that pay great dividends and have room for growth. Want to know which one is our favourite? Discover The Motley Fool’s favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of “The Motley Fool’s Top Dividend Stock for 2013-2014.”
- Banks cautioned to limit dividends ahead of earnings reports
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- ANZ bullish on Asian markets
Motley Fool contributor Owen Raskiewicz does not have a financial interest in any of the mentioned companies.
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