Asia is the 'growth story of the century'

ANZ chief executive Mike Smith gave a very strong endorsement to the bank's investment in Asian banking markets, saying that the Australian and New Zealand economies were dependent on Asian growth, that the two countries were growing more closely involved in the regional economy and that more and more of the bank's business customers were doing business there.

The bank announced the introduction of an underwritten dividend reinvestment plan yesterday, which will raise $1 billion of equity capital, and there was plenty of speculation that it would use that money for further investment in the region.

Since 1999 the bank has invested $1.8 billion in partnerships with Asian financial institutions. Yesterday's financial report shows that earnings from the region are growing strongly but that Asia is still a very small part of ANZ's overall business.

ANZ made a profit of $171 million from Asian operations in 2007, which was 37 per cent up on the previous year. That is the fastest rate of earnings growth of any of the bank's operations but it is only 1.6 per cent of the total.

ANZ has had the most active investment program in Asia among the big four Australian banks. Its Asian banking partners include Tianjin City Commercial Bank and Shanghai Rural Commercial Bank in China, ANZRoyal in Cambodia, Panin Bank in Indonesia, Vientiane Commercial Bank in Laos, AmBank Group in Malaysia and Sacombank in Vietnam.

Those partnerships are all in the retail and small business banking markets.

The earliest of the partnerships, with PaninBank, dates back to 1999. The pace of expansion has picked up in the past year with partnerships formed this year in China, Malaysia and Laos, and a credit card venture in Vietnam.

Also this year ANZ bought a 10 per cent stake in a Vietnamese investment banking and securities business, Saigon Securities, and in February it acquired 100 per cent of Citizens Security Bank in Guam.

ANZ is pursuing institutional banking opportunities through branches in China, Hong Kong, Indonesia, Japan, South Korea, Philippines, Singapore, Taiwan and Vietnam. It has representative offices in Malaysia and Thailand.

On the question of scale, Smith said: "That does not happen overnight. We have a two-pronged strategy - get more growth out of our partnerships and look for further acquisition opportunities.

Banks in several Asian countries are trading on price earnings multiples of 40 and 50 times. Those multiples make it hard to justify acquisition at the moment but Smith said he did not believe those levels were sustainable. A correction might shake loose some opportunities.