ANZ presses on with push into Asia
After unveiling a record $6.5 billion full-year cash profit and sharply higher dividends on Tuesday, Mr Smith stood by his contentious plan to ramp up the share of profits it makes outside Australia and New Zealand in coming years.
The strategy has come under fire from market analysts in recent weeks amid lower returns in Asia, but Mr Smith said this was outweighed by the growth potential.
He also called for the government's financial system inquiry to examine the bipartisan "four pillars" policy that prevents mergers between the big four banks.
The return on ANZ shareholder funds invested in Asia in the year to September lagged those in its traditional markets of Australia and New Zealand, with a return on equity from Asia in the low double digits compared with the group-wide return of 15.3 per cent this year.
In the year to September, group-wide earnings jumped 11 per cent but profits from outside Australia and New Zealand rose by 5 per cent to $1 billion.
Mr Smith urged investors to take a long-term perspective and consider the greater growth potential of Asia's economies.
"The future of Australia and New Zealand is now completely linked to Asia, which is also the number one driver of global economic growth," he said. "We are the only Australian bank - and one of just a few double-A-rated international banks - that provides customers with a network and connectivity to these fastest-growing markets."
Pressed to explain how a presence in fast-growing economies translated into higher shareholder returns, Mr Smith said it was necessary to have "critical mass" in a region.
"If you are of critical mass you will have a platform, which will actually automatically grow with GDP growth, so if you're in a higher GDP growth region ... you would automatically expect your business to grow faster than one in a low one."
ANZ will pay a fully franked final dividend of 91¢ a share on December 16, taking total distributions for the year to $1.64, a 13 per cent increase. Its shares surged to a record close of $34.06.
A fund manager at Alphinity, Andrew Martin, said the higher dividend and a move to buy back shares issued under its dividend reinvestment plan boded well for future shareholder returns.
"It's a positive signal from the board that they are pretty confident in their ability to grow the business," he said.
Despite the heavy focus on its Asian plans, a strong performer was ANZ's Australian arm, where it has been pinching home loan, credit card and deposit customers from rivals. Profits in the division, which includes retail and small-business lending, made the biggest contribution to profit after expanding to $2.87 billion.
While the bank has been pumping more capital into its Australian business this year, Mr Smith said its capacity to do this was limited by weak domestic credit growth.
The result suggests NAB and Westpac, which report their profits over the coming week, are also generating strong profits from their domestic businesses.
In a sign of the challenge facing ANZ's expansion, profits from Asia-Pacific, Europe and America were 15.6 per cent of group earnings, well below the 25 to 30 per cent target for 2017.
At the same time, its Asia-heavy institutional business had a strong September half, with profits rising 15 per cent to $2.4 billion.
Frequently Asked Questions about this Article…
ANZ Bank is focusing on expanding into Asia because the region offers significant growth potential. Despite lower returns in Asia compared to Australia and New Zealand, ANZ's CEO Mike Smith believes that the growth opportunities in Asia's fast-growing economies will ultimately lead to higher shareholder returns.
ANZ Bank's strategy to expand in Asia has contributed to a 5% increase in profits from outside Australia and New Zealand, reaching $1 billion. However, the return on equity from Asia is still lower than in its traditional markets, indicating room for growth.
One of the challenges ANZ Bank faces with its Asian expansion is achieving the target of 25 to 30% of group earnings from Asia-Pacific, Europe, and America by 2017. Currently, these regions contribute 15.6% of group earnings, highlighting the need for further growth.
ANZ Bank plans to increase shareholder returns by expanding its presence in high-growth regions like Asia, which is expected to grow faster than lower GDP growth regions. Additionally, the bank is increasing dividends and buying back shares issued under its dividend reinvestment plan.
The record $6.5 billion full-year cash profit signifies ANZ Bank's strong financial performance and its ability to generate higher dividends for shareholders. This profit reflects the bank's successful strategies in both domestic and international markets.
ANZ Bank's Australian operations have been strong, with significant contributions from retail and small-business lending, leading to a profit of $2.87 billion. In contrast, while Asian operations show growth potential, they currently yield lower returns compared to Australia.
The 'four pillars' policy, which prevents mergers between the big four banks in Australia, is a factor in ANZ Bank's strategy. CEO Mike Smith has called for a review of this policy, suggesting it could impact the bank's ability to grow through mergers.
The future prospects for ANZ Bank's shareholders appear positive, with the bank's focus on high-growth regions like Asia and its commitment to increasing dividends and share buybacks. These strategies are expected to enhance shareholder value over the long term.