ANZ declares victory in turnaround of its institutional bank

afr.com:

ANZ has highlighted rising returns within its institutional bank as evidence of its turnaround, as well as the potential for higher earnings from its more focused strategy, which is prioritising payments and transaction banking services for large companies over lending to them.

ANZ’s relatively large institutional bank – which generates one-third of revenue, a higher proportion than rivals – has acted as a drag on its share price for many years given returns are generally lower than retail and commercial banking in Australia.

ANZ group executive for insitutional banking Mark Whelan with managing director of transactional banking Lisa Vasic in Melbourne. Arsineh Houspian

However, ANZ believes its streamlined international network is a strategic asset that rivals cannot match. And it says over the past seven years, the division’s financial performance has drastically improved as it cut away lower-quality customers, reduced capital deployed against lending, and focused on generating corporate deposits by connecting global companies – including many foreign banks – into the Australian payments system.

Clients of ANZ’s payments and cash management division include Amazon, BHP, Toyota, American Express, Temasek, Lend Lease and Visy Industries. There are 4500 customers using its payments and cash management services, following a multi-year investment of $1.2 billion to improve IT systems.

Mark Whelan, who has run institutional banking since 2016, said ANZ had developed more in-depth relationships by managing companies’ cash flow, providing the bank with fee income and a pool of highly liquid deposits that could fund its broader lending activity.

Return on equity in the institutional bank is now about 14 per cent, up from 7 per