p.MsoNormal, li.MsoNormal, div.MsoNormal { margin: 0cm 0cm 0.0001pt; font-size: 12pt; font-family: "Times New Roman"; }div.Section1 { page: Section1; } The retreat of European banks from Asia is good news for other banking groups in the region, particularly ANZ, according to Macquarie Equities.

 

In a report issued last week, Macquarie said it expected ANZ to be able to increase the profitability of its Asian operation from the current level of nine per cent return on equity, which it reported for the 2010/11 year, to an ROE of 14 per cent.

ANZ's Asian chief, Gilles Plante, said in an interview with the Financial Review, published today, that "we are well on track in terms of what we hope to achieve in our businesses. Our progress is at our above our expectations."

 

Macquarie has an "outperform" recommendation on ANZ, which is its preferred bank stock.

 

Macquarie is taking a different view on ANZ's Asian expansion. Other analysts have expressed concern about the low rate of return on the business and also whether ANZ will be able to secure funding for its growth.

 

The Macquarie report said: "We believe the market's concerns over funding are misplaced. ANZ's Asian business is actually self-funding, with a loan-to-deposit ratio less than 60 per cent compared with the average Asian bank ratio of 80 per cent.

 

"This means that, even in tight funding conditions, ANZ should be able to reallocate existing liquid assets (A$10 billion held with the Federal Reserve, for example) to grow its loan book as the Europeans exit."

 

Macquarie's view on the low ROE reported last financial year was that it reflected the fact the ANZ's Asian business is still in a growth phase "and not fully scaled".

 

Adjusting for full utilisation of excess liquidity and the expected cost to income ratio of a fully scaled business, Macquarie is projecting a long term ROE of 14 per cent. The cost to income ratio for the Asian retail division was 80 per cent in 2010/11 - down from 89 per cent the previous year.

 

ANZ generated 14 per cent of its earnings from Asia-Pacific, European and American businesses last year - up from eight per cent in 2006/07. Revenue increased by 22 per cent, customer deposits grew 40 per cent to $18 billion and lending grew 44 per cent to $12 billion.

 

Areas of strong growth included Taiwan, where revenue grew 127 per cent, China (up 82 per cent) and Hong Kong (68 per cent). The group commenced operations in India during 2010/11.

 

ANZ's deputy chief executive, Graham Hodges, told investors at a briefing in November that the bank's aspiration was to generate 25 to 30 per cent of group profit from its