ANZ’s Whelan on China, data science and ROE

Risk30: markets business at ANZ is picking new targets

Mark Whelan.jpg
Mark Whelan: "We are looking to grow our risk-weighted assets again, but off a much better return"
Josh Robenstone

This is the fifth of 10 interviews marking Risk’s 30th anniversary. An introduction to the series – and links to the other articles – is available here.

Like any good story, the post-crisis rise of the regional dealer has some twists in it. Take Australia and New Zealand Banking Group (ANZ) as an example: as global dealers exited markets and cut products, the Melbourne-based lender seized the opportunity to expand, hoovering up clients and revenue across Asia.

It became unbalanced and was forced into a retreat of its own. Two years ago, Asian and institutional banking was consuming just over half the bank’s capital, generating a sub-10% return on equity, analysts estimated, versus 14% for the group.

Mark Whelan, group executive for the bank’s institutional banking business, says customer numbers are down to around 8,000 from a peak of roughly 27,000 in 2015, and the unit now represents around a third of total capital. The ROE gap to the rest of the bank has narrowed “significantly”, he says.

Now, after all-out assault and partial retreat, the bank is picking fresh targets – but more carefully.

“By shrinking the assets, we have freed up capital, simplified the products, improved technology and reduced the number of people,” Whelan says. “We are now, if anything, looking to grow our risk-weighted assets again, but off a much better return.”

In 2017, the bank boosted full-year cash earnings – which excludes one-offs – by 18% to A$6.9 billion, with the institutional banking business cash profit surging by 76% to A$1.8 billion.

We see China as a market that will continue to deregulate gradually over a period of time. That opens up more and more opportunities for us
Mark Whelan, ANZ

China is one of Whelan’s bets; the power of new technology is another. ANZ has expanded its Shanghai-based dealing room to 40 people, almost double compared with two years ago, says Whelan. His business unit has also hired 20 data scientists in Melbourne over the past 10 months to analyse proprietary data across trade and markets-related flows to identify useful trends and insights. 



“We are continuing to invest in China,” Whelan says. “We see it as a market that will continue to deregulate gradually over a period of time. That opens up more and more opportunities for us, and we are bullish.”



China is Australia’s largest trading partner, and was the largest foreign investor into the south-Pacific nation in 2015/16, the third consecutive year it has held that title. But while it makes up more than one-seventh of the global economy, it has much less heft in global markets. Foreign investors own less than 2% percent of the country’s domestic stocks and bonds. That is starting to change, however, as president Xi Jinping loosens rules on foreign participation.

RMB internationalisation

The nation is targeting increased convertibility of the renminbi by 2020 and has steadily encouraged its internationalisation. The RMB’s share of global currency markets has almost doubled since 2010, as new trading centres opened and trading partners agree to use it in deals.

Beijing has also started to facilitate more access to what is the world’s second-largest stock market, notably via trading links between Shanghai, Shenzhen and Hong Kong. Its $11 trillion onshore bond market is being opened up, raising the potential for a big increase in overseas holdings of Chinese notes. And admission to global bond benchmarks is also on the horizon.



ANZ is focusing on China asset products to meet the demand from local financial institutions. Other opportunities include hedging solutions for Chinese corporations expanding overseas, and cross-border products.



RMB internationalisation will continue to benefit from major financial infrastructure milestones, such as CIP [carriage and insurance paid] for cross-border clearing and additional RMB offshore clearing centres,” Whelan says. “Recent data signals some early success of deleveraging because of the Chinese government’s efforts in regulating cross-segment activities of financial institutions. Banks are expected to increase their demand for funding through traditional sources such as the interbank market.”



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Josh Robenstone
Eventually we need to focus on the big end of town – transaction banking, financial markets, debt capital markets and loan syndication
Mark Whelan, ANZ

China established Bond Connect with Hong Kong in July. The system lets foreign investors buy RMB-denominated notes that have been issued on the mainland. Citigroup forecasts inflows into China’s bond markets will reach $3 trillion by 2025.

ANZ is also looking at a Japan securities licence to boost its debt capital markets capabilities in the country, Whelan says. This is not a return to full-tilt expansion, though. ANZ will continue scaling back products in certain countries where it doesn’t think it will achieve the scale or desired returns, he adds. 



For example, “as we start to shrink away from retail customers in some Asian countries, we may not need to offer all products there,” he says. “Eventually we need to focus on the big end of town – transaction banking, financial markets, debt capital markets and loan syndication.”

These changes – along with digitisation of the bank – are intended to boost returns, crimp cost and make ANZ better prepared to take on the disruptors and the growth of technology giants in financial services.

“How do we get efficient and meet the challenges posed by smaller organisations is a question we ask ourselves,” Whelan says. “We review our end-to-end processes, we digitise our product menu process, whether it is in approval or monitoring customer facilities. We are also investing in artificial intelligence.”



An April survey by consulting firm McKinsey found almost all banks listed advanced analytics as a top priority, though most were struggling to achieve scale and integrate disparate projects. It showed lenders have spent hundreds of millions on their data – especially risk data – and on compliance.

However, for those who get it right by investing significantly in data lakes, machine learning, risk data and compliance, rewards are there for the picking. McKinsey estimated commensurate rewards of about €300 million in additional annual profit, on average.

Advanced analytics can help banks wring small improvements out of almost all their everyday activities, boosting the traditional profit levers – or so the sales pitch goes. Potential benefits include accelerating growth, even in an anemic environment, enhanced productivity and risk control, the McKinsey paper argued.

L to R: Shayne Collins and Mark Whelan
Photo: Josh Robenstone
We have a significant investment and capability in our quant teams who build and maintain our pricing, valuation and risk engines across asset classes
Shayne Collins (left), ANZ

It can also help banks find new sources of growth – for example, by sharing customer-analytics capabilities with new clients, such as telecom companies or retailers.

ANZ’s markets business plans to use its data scientists in a variety of ways, such as better understanding its loan portfolio risks, or getting more information out of client flows and market movements. These insights will be used internally, or shared with clients.

“We are hiring data scientists, people with PhDs who are free from any bias given they haven’t been traders before,” Whelan says. “The data scientists have a broader remit to look at data within the bank, to look at the flows, so we can either advise customers about changes in certain demographics or for ourselves to monitor the flows to manage our risk exposure. It gives us big capability across risk management, financial markets, and goes a long way in helping customers in areas such as agribusiness and retail.”

One area the team has already focused on is the relationship between prices and certain economic releases.

“In the past, there was more intuition or human assessment of how to adjust spreads or how to manage liquidity and risk appropriately,” says Shayne Collins, managing director of markets at ANZ. “Using fact-based data analytics, you get a better understanding of correlation on how to manage risk and liquidity better. You can pass that information on to your sales team, they can then provide value-add to your clients and help them make the right decision.”

The impact of data science

Collins offers an anecdote to show how data scientists are starting to have an impact. In recent months, the data scientists engaged with ANZ’s foreign exchange trading team and identified market responses to particular economic releases. This provided new insights into market expectations, trading activity and volatility in the run-up to certain economic releases and also after publication. This extended to how a portfolio had performed subsequent to such events and potentially how its management could have been improved.


“We have a significant investment and capability in our quant teams who build and maintain our pricing, valuation and risk engines across asset classes,” Collins says. “The data specialists are separate to these teams. They have no bias, they have not been involved in markets and they are purely looking at data. We believe data will be a key competency for us in our institutional and Asian businesses.”

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