ANZ Group Holdings Ltd (ASX: ANZ) shares are up by 0.97% to $25.91 apiece on Tuesday.
Meantime, the S&P/ASX 200 Index (ASX: XJO) is up 1.15% to 7,537.4 points.
Amid signs that competition for home loans is heating up, top broker Goldman Sachs has a buy rating on ANZ shares largely due to the company's superior market share of institutional banking services.
Let's look into this further.
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ANZ: The institutional banking services specialist
ANZ has the biggest institutional banking division of the big four ASX 200 bank stocks. It has three other divisions within its business model — New Zealand, Australia Retail, and Australia Commercial.
Institutional banking involves providing services such as international payments, clearing services, and liquidity management to large companies and other financial services providers.
ANZ provides clearing services to more than 500 financial institutions and is the largest clearing bank in Australia and New Zealand, with a 60% market share.
The size of ANZ's institutional division is a key point of difference among the big four ASX 200 banks.
While all of them offer home mortgages, ANZ has dominance in institutional banking, and National Australia Bank Ltd (ASX: NAB) has a superior share of business banking.
My Fool colleague Bernd reports that competition in the home loan market is heating back up, meaning a likely squeezing of margins as the banks offer cash backs and lower borrowing rates to win customers.
In these circumstances, ANZ and NAB shares have a degree of profit protection given their speciality areas outside home mortgage lending.
Transformation of institutional division
ANZ says a restructuring of its institutional division in recent years has yielded excellent results.
In FY23, institutional division profits increased by 53% and revenue from the PCM business jumped 59%.
Overall, institutional contributed about 40% of ANZ's total group profits.
In a recent bluenotes blog, ANZ's Institutional Group Executive Mark Whelan and Managing Director of Institutional Transaction Banking, Lisa Vasic said:
[In 2023], ANZ's payments and cash management (PCM) business facilitated the movement of $164 trillion in all payments and capital flows to, from and within the markets in which we operate, and either cleared or provided payment services to more than 90 per cent of the world's globally systemic banks.
This enterprise business has enormous economies of scale and this year's results are a major step forward. The success of the PCM arm is a key part of the bank's broader growth story … It's also a sign of the successful transformation of ANZ's Institutional business.
Digitisation of global economy good for ANZ shares
ANZ says digital technology advancements have lifted the scale and scope of institutional banking services.
Over the past seven years, ANZ has invested more than $1.2 billion in technology to improve its PCM services.
Whelan and Vasic said:
This business is delivering strong returns well above the cost of capital and providing critical support to ANZ customers who move money and goods around the region.
Due to the speed and proliferation of digital innovation, businesses today expect more services from the modern banking system. Services that didn't exist at scale ten years ago.
Our investment in our PCM business has made this possible and differentiates us from our Australian peers.
Should you buy ANZ shares?
Goldman Sachs believes the performance of ANZ's institutional business division will underpin fully franked dividends of $1.62 per share in both FY24 and FY25.
Based on the current ANZ share price, that will mean a dividend yield of 6.25%.
Goldman has a buy rating on ANZ shares and a 12-month price target of $26.66.
