Who’s holding up through the crisis?

The positon of banks in the economy gives them a unique, broad view on the state of the market as the crisis unfolds. Some are just holding on. Others are finding new ways to thrive.

To discuss these themes and more, ANZ CEO Shayne Elliott sat down with ANZ Head of Diversified Industries Tammy Medard to talk about the health of her team’s customer base. Below is an edited version of that conversation.

They started by addressing the momentum across ANZ’s customers as they move into recovery mode, including those which were right at the pointy ends when the crisis hit.

Medard: I'm an optimist so I'm glad you're asking me to focus on the positive, because there actually have been positives for our clients, and not just for supermarkets, but a lot of the other retailers you might have thought would be suffering.

Many have finally been able to transition their customers to their online sales channels, something they’ve been trying to do for years, and are now seeing extraordinary results through in online sales.

Or, for example, a lot of Australians have chosen to use this time at home to hone their bread-making skills. I’m sure many of us have seen loaves of homemade bread proudly posted on Instagram, so the sellers of breadmakers and small kitchen appliances have done quite well.

People now have the time to do DIY projects, so hardware stores are really thriving. But the stories that really get me excited are the ones where you see our customers just pivot their business model to address the current market.

For example, one of Australia's largest flour producers has been able to increase their production of ethanol, which is a by-product of producing flour, to help make more home-produced Aussie hand sanitiser.

One of my favourites is an entertainment client which had a large inventory of popcorn and confectionary items for its concession stands. It decided to start delivering popcorn through Uber Eats. So you were able to sit down with your family, watch Netflix, and order your popcorn and Jaffas to be delivered to your door. I've really enjoyed seeing that kind of creativity and agility in our clients.

Elliott: In a time of crisis our customers are equally overwhelmed by things and needing to make lots of changes. What do they turn to their banker for? What typically are they coming to talk to their ANZ relationship manager about?

“The stories that really get me excited are the ones where you see our customers just pivot their business model to address the current market.”

- TAMMY MEDARD

Medard: The conversations have been quite interesting over the last three months. It's not often that clients have their doors closed and are forecasting zero revenue for a period of time.

There are probably some key things they've been looking to us for. One, they wanted our bird's-eye view on what we're seeing. A lot of our clients are very good in understanding their business but they also wanted to understand the broader marketplace.

Two, they wanted to understand our views - what's our view on how long these lockdowns are going to go for and what’s the economy going to look like? For these types of questions we brought together ANZ’s economics team, along with our relationship teams which are dealing directly with the clients, and our risk teams to come up with some collective views on certain high-risk sectors.

They are largely trying to understand our insights to determine how much liquidity they need to help them get through to the other side of this pandemic.

Elliott:  One of the problems we have is in many ways the easy thing to do for the bank is just to give our customers more leverage or give them more money.

If you were the treasurer at any of these companies, it’s probably not a bad thing to just go and borrow some money and stick it on deposit just for safety purposes.

How does your team get the balance right? We can’t just say ‘oh, because your business is shut down tomorrow it's all going to die’. How is your team getting that balance right, particularly in the more high-risk and volatile sectors?

Medard: Yes, you're right. It did help that we took a house view that said look, at some point - we don't necessarily know the exact date - but at some point people will fly again, people will go to movie theatres again and people will go back to their department store.

So you're right, we didn't think everything was just going to die. That being said, we had to be careful we didn’t give any client more debt than they can afford. It’s similar to the retail mortgage space in that regard, if we have a retail mortgage customer that wants a million-dollar mortgage,  but they really can only afford a $A200,000 mortgage, we shouldn't be lending them the million dollars they asked for. It's the same in the corporate space.

We wanted to make sure we supported as many customers through this as possible but wanted to make sure that they would be strong, viable customers on the other side of this. If you lend too much, then they won't be strong and they won't be able to afford it.

At the same time, if you lend too little, you don't want them coming back to you in three months' time when perhaps they didn't get on top of cost-cutting and perhaps have burned through their money.

It's a really fine balance and that's where really coming together and forming house views within ANZ helped, by coming up with what we saw as a base case scenario for their industry based on what we were seeing across the sector and asking them to push those scenarios through their models to find out how much money they might need.

I recall having an animated discussion with one of our clients who was quite optimistic, and was seeking some “just in case” liquidity funding. I asked them to model a three-month closure and what it meant for their business to determine if they needed the money, and if they could afford it.

At first, they were reluctant, but after thinking about it further and discussing it with their board, they realised it wasn't a good idea to get more debt. The better idea was to cancel dividends for the time being and get a better handle on cost.

Because we had that push and pull and we didn't just say yes, it led to them making wiser decisions for the sustainability of their business.

Elliott: Your business is the ultimate relationship business. A lot of that typically has been face-to-face and out on the road, going and seeing people in their factories and plants and shops and all those other things.

I heard your actual contact with clients has increased through this period. How have you adapted to that and what are you doing to close the gap?

Medard: It's fantastic. I've never had so many client calls in such a truncated period ever because everyone's home.

Normally, you have to juggle your own travel and meeting requirements, as well as your clients who are out there seeing customers or doing what they need to do. In this case everyone seems to be home so we've talked a lot - we've slowed the pace down.

I was just speaking about this with one of my clients from a large listed entity the other day - we both agreed it was really refreshing to be able to get hold of somebody within 24 hours. You get phone calls back.

Elliott: What has surprised you through the crisis?

Medard: I've absolutely loved watching everyone just roll up the sleeves and help each other out. I mean, there were some industries - in the entertainment sector, retail, obviously aviation were really heavy hit and others, not so much.

What I saw is just everyone put up their hand and say, ‘hey, I have capacity. Let me help’.

Shayne Elliott is CEO at ANZ