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WITH Australian banks retreating from the retail business in Asia, OCBC has scooped up the retail and wealth business in Singapore and Hong Kong of Australia's largest business bank, National Australia Bank (NAB), to bump up both its mortgage portfolio and customer base.
Observers said the deal reflects the surging costs for foreign banks in competing against local players in the retail and wealth space in Asia.
While there is undoubted growth in wealth in the region, non-domestic players would have to spend significantly to expand their product and services suite beyond a boutique presence.
"In American football, there's a phrase, 'Go big or go home'. And based on a cost-benefit analysis, it was time to go home," said one observer, pointing to NAB's exit from the Asian wealth business.
The negotiations for the profitable business unit took about three months, The Business Times understands. The acquisition, in effect, has Singapore's second-largest bank buying up about US$1.7 billion of mainly residential mortgage loans, with more than half of the properties in the major Australian cities of Sydney, Melbourne and Brisbane, OCBC announced on Thursday. Notably, over 50 per cent of these mortgage loans are booked in Hong Kong.
The purchase price will match the value of the loan-book at the time that the transaction closes, which is expected to be by the end of the year.
To be clear, the purchase comes with a US$3.05 billion deposit portfolio comprising a mix of currencies that include the Australian, Hong Kong, Singapore and US dollar.
OCBC will reach about 11,000 new customers, with more than 7,000 in Singapore and about 4,000 in Hong Kong. Most of the customers are Singapore and Hong Kong residents.
With the mortgages increasing the bank's overall mortgage portfolio by about 4 per cent, one analyst noted that the bump is "negligible".
"OCBC does get 11,000 customers out of it - though how sticky they are is another issue. (But) the low customer acquisition cost is probably the attraction for OCBC," he said.
OCBC said the acquired business will be earnings accretive to the bank within the first year of completion.
The mortgage portfolio is made up of mainly home loans with an average loan-to-valuation ratio of below 60 per cent, as weighted according to the value of the loans. NAB also has a "strong track record with negligible delinquencies", OCBC said.
The business adds to the bank's overseas property financing programme for real estate in Australian cities such as Sydney, Melbourne and Perth.
"This deal makes financial and strategic sense to us," said Ching Wei Hong, OCBC's chief operating officer, noting that the mortgage loan book would have required "time and money" to grow via organic means.
"The mortgage portfolio to be transferred to us is a high quality and well-supported one, (while) the customers are in the affluent segment that we have been building."
The deal also comes amid surging profit contribution of regional business for OCBC. The bank's shares closed on Thursday at S$10.56, up 10 cents.
The market is drawing comparisons between the NAB transaction and the one signed by DBS and ANZ in November, with ANZ selling most of its wealth and retail business in Asia for S$110 million to Singapore's largest bank.
That S$110 million represented about 0.5 per cent of the S$23 billion of assets under management from ANZ's wealth business, mostly out of Singapore and Hong Kong.
The ANZ sale to DBS also included loans and deposits, but was also in effect a self-funded loan book. At the point of announcement, DBS said it would take up about S$11 billion of loans once financed by ANZ, as well as S$17 billion in total deposits owed to former ANZ customers.
It should also be noted that ANZ took a A$265 million (S$275 million) loss on the sale to DBS, reflecting write-offs taken for software, goodwill and fixed assets, as well as transaction costs. By contrast, NAB said the sale will not have a material financial impact on it. It is now focused on helping business customers in Australia and New Zealand access the Asian markets.
In a media statement, Neil Parekh, NAB's general manager for Asia (ex-Greater China) said: "We wanted a buyer that could meet our customers' growing demand for a wide range of wealth management solutions in Asia. OCBC is uniquely qualified to do so.
"We will work closely with OCBC during the transition to completion to ensure a smooth process for customers moving to a business with a comprehensive product offering and strong presence in Asia."