Executive Interview - Mark Evans: Chief Compliance Officer, ANZ
- Trade and supply chain are intrinsically linked
- ANZ should be compared with HSBC and StanChart in Asia, not with its Aussie Big Four Competitors
- The bank is well progressed with its Asian build-out, but there is still some way to go
ANZ’s regional strategy is well known to the market but where does trade sit within that?
You can’t have a super-regional strategy that is focussed on tapping into trade flows and foreign direct investment without having a strongly supported and well-constructed trade business. Our strategy is to build seamless connectivity across the Asia Pacific region to support our clients who are increasingly part of large, cross-border supply chains.
So, when we talk about trade and supply chain they are intrinsically linked. Supply chain is often just an extension of what customers will define as trade. From an ANZ perspective trade has been in our DNA for as long as the bank has been around. ANZ has been Australia’s international bank for many years and the super-regional strategy gives us the ability to build on that core capability we have within ANZ. It’s front and centre and not just because I’m saying it - it’s actually something that Mike Smith, our CEO, and the board have bought into and are absolutely committed to. It’s a product area which, if it is well understood, is a low risk means of acquiring new business and leveraging your own network. From a risk perspective, a well-managed trade business is a desirable way of managing the risks associated with lending to new markets.
How Asia-Pacific is your trade business in its focus?
ANZ has a Trade presence on the ground in 28 countries with both trade sales and operational support people in all of those countries. So, that’s right across Asia and right across the Pacific. We have more people outside of Australia than within it, and even though Australia continues to be our single largest geography, we generate more revenue from our trade business in Asia than we do from Australia and NZ combined.
Describe for me the model for your trade business, because you increasingly try and be on both sides of the transaction don’t you, as a way of extending your regional footprint?
The best model for a trade business is the ability to handle the needs of clients from end to end. It’s not just about having a product, operations or sales capability. It’s about being able to service the client in multiple geographies and at multiple levels.
A lot of what we do when we talk trade is around risk mitigation or working capital related financing - conversations that are held across multiple levels within the company. We have relationship managers or lead sales people who normally face off to the CEO or the CFO who understand the customers’ strategic aspirations, particularly when they are dealing offshore, whether that’s sourcing material on the import side or where they are selling to. But also you’ve got the people who are living and breathing the trade business day to day. These are the operations people; the ones who are delivering the service; the ones who are sorting out situations where goods are in demurrage because documents haven’t arrived or been completed properly. They are also the people who can identify risk or opportunities early on in the piece: "you may have believed that you were achieving greater risk mitigation by including this clause, but actually it’s exposing you to more risk". It’s about having that relationship that can point things out at a working level. So we are very much committed to that relationship and serving the customer at all levels across the client’s business. Most importantly we do that on the ground in each location. So, the structure is very much positioned to manage the trade business end to end and we believe very much that our operations people need to have strong relationships with their counterparts at similar levels within our clients’ businesses.
At ANZ, we are also structured in a way that allows us to use the same trade processing platform and customer terms and conditions globally. So when a customer has a trade relationship with ANZ it is, as best as we are legally able to control, the same everywhere. If you are a customer in Australia and you know the basis on which we provide trade services, if you have a subsidiary in Hong Kong or Vietnam or Fiji, fundamentally the terms and conditions will be exactly the same. So you know where you stand. You don’t need to renegotiate those terms. The only things which really differ are those imposed on us by local regulations. We are a guest in every country we operate and we have to follow local laws and regulations. But fundamentally, what we want to get across is that if a customer deals with us they know where they stand with ANZ no matter where they transact with us.
We also very much push the notion that we are all part of a global team. We try to link our operational and sales teams in the 28 countries in which we operate so they know who to talk to in the different geographies. So when a customer, say in Australia, is doing business with Vietnam, it is an opportunity to draw on the expertise and local knowledge of the trade people on the ground in Vietnam, that the trade bankers in Australia don’t necessarily have.
So, by having that ongoing dialogue and that feeling of being part of a global team we can actually deliver meaningful value and insights that those banks that don’t have that network just won’t have a chance to do. It’s a different strategy; I’m not saying the others are necessarily wrong but I am saying that if you want to have a good trade business, which is something that customers value.
So just comparing your trade strategy to that of the other Big Four, how is it different and what is the point of differentiation?
It’s very different to the other Big Four and, in fact, in a trade context I don’t think we should be compared against the Big Four, except within the context of the Australian and New Zealand markets. The majority of trade wallet in every market resides in local domestic banks, because that is who local customers have a relationship with. So, to that extent, in Australia and NZ we do need to be mindful of what Westpac, NAB or CBA are up to, because they will be a banker to companies that we don’t necessarily bank.
Who we actually should be compared to, and certainly who we are looking at, are those banks which have super-regional aspirations. This includes StanChart, HSBC, Citi and also emerging regional players as well, such as DBS. There are also a few other banks that are looking to pick up smaller slices of the market than our super-regional approach, but are still trying to differentiate themselves around following trade flows through multiple geographies.
So, if we talk about the how we would compete against the domestic banks, their strategy is fundamentally very immature. They talk about trade and servicing their customers across the Asia Pacific region, but they don’t really have the depth of understanding that a significant trade bank has. Certainly, they don’t have the longstanding presence in these different markets that we have. It’s all very good for them to say they are going to establish a trade office in China. China is a big place. They may have one rep office or one branch with limited staff in the middle of Pudong, but that is not the same as being near where manufacturing or commercial activity takes place. It’s a finance centre, versus having people on the ground and wanting to actually bank local corporates in that geography and that’s something that we really want to do. It’s just not about providing finance to other bankers so they can access US$ from highly rated Aussie banks, but it is about actually building a relationship with our core customer’s counterparties and leveraging that as a means by which we can establish banking franchises in the geographies in which we choose to operate. That is a key point of differentiation and that is something that the other Aussie banks, at this point, are grappling with. And even if they understand it at a strategic level, it takes management skills and systems to make it a reality in a meaningful way.
We are already a meaningful business within the ANZ context. The trade businesses in the other banks are not, and they won’t be. I’m not being critical of them because different banks have different strategies. Trade in a lot of these banks is something that you have to deliver, because if you are going to be a banker to some of these customers you have to have a trade offering. We are saying that trade is something we lead with.
So where are you in terms of building out that capability?
We are well progressed, but we are not in a position to say we will take over any of the local banks in any one geography outside say, Australia or New Zealand in the near term in regards to market share. But we are now seen as one of the top four corporate banks in Asia. That’s a great position. A couple of years ago we weren’t in the top 20 so we have made real progress in a number of geographies, and that’s given us a launching pad, particularly into the commercial and retail markets in those markets in Asia we want to be in. In the Pacific we are a longstanding player and have been for a long time. People ignore that and talk about Australia and NZ as being our core markets, well actually if you go to PNG or Fiji or any of these other countries we’ve been there for a very long time and are one of the main banks. I don’t think people understand the breadth and longevity of our commitment to dealing internationally and supporting customers in multiple geographies.
You are very strong in the institutional segment, but not so strong in corporate or SME in Australia. Is that something you want to address, or are you leaving that for other banks.
If you listen to what Mike Smith says, and Mark Whelan, who heads the Australian commercial business, there is very much a focus on getting us up to what we believe is our rightful place as a leading commercial bank, certainly in the Australian market, within the next couple of years. We have historically had an Insto focus and we do dominate that segment, particularly in the trade space. In the commercial and lower corporate segment that is more a market, for trade products in particular, where your core banker will get your trade and your working capital needs. So NAB, for example, has been the larger player in that market for many years by doing exactly that – winning the clients ‘whole of bank’ business. As a consequence of being one of the larger commercial banks in that space over a decade, they by default get a lot of the trade facilities and wallet that we would otherwise like to have.
Now trade is part of an overall relationship, and we are a relationship bank, so as the head of a trade business I don’ t necessarily want to have 70 percent market share in the trade space, and yet have only 10 percent market share in the overall commercial banking space. There’s no doubt that we have the capability, particularly in this market in Australia because that’s where we have really been dominant. There’s no doubt that we have the strongest capability in terms of talent within this market. We’ve also got the best systems in this market, but we don’t have that natural ownership of the commercial and lower corporate banking space from an overall relationship perspective. But, if you go out and just lead with a single product and not get the rest of the relationship, it’s a riskier way to do business.
So, to a large degree the speed of our growth is dependent upon our overall capability in terms of cash management, lending and relationship. In terms of market share we’ve come from fourth in these markets a few years ago to now be second. So, the intent is there and we are certainly growing market share, but the key has got to be that we work hand in hand with our commercial relationship colleagues to deliver the right solutions at the right time for our customers.
So it’s a whole of bank strategy?
Absolutely. You’ve got a mature market in Australia where we are underweight in our commercial wallet share. The trade part of it is fine, but we have to balance that up with the rest of the commercial relationship. Buying the RBS business has given us a start, and Ivy Au Yeung, Managing Director, Commercial Banking Asia Pacific, is driving the growth of that commercial segment in Asia so that our commercial clients in Australia will be able to bank with us as a commercial client in Asia.
You asked before about the difference between us and other domestic banks. Our domestic competitors don’t have coverage on the ground in those markets, so the extent to which they can start establishing trade relationships with customers overseas will be limited by only wanting to deal with large Australian or NZ businesses with global names and investment grades. So, the problem for them is if they go to their commercial or corporate banking clients and say "hey we’re an international bank, we can help you offshore." And when the client says "well can you open me a $500,000 trade facility" they say "actually no I can’t do that because we don’t have the scale." Whereas ANZ, through its Asia Pacific network, does have scale and we do want to bank them. So that’s the point of differentiation.
(Footnote: Interview was conducted during Mark’s previous role as Global Head of Trade and Supply Chain)