OCBC to buy Indonesia’s Bank Commonwealth for 2.2 trillion rupiah

A SUBSIDIARY of OCBC is proposing to pay 2.2 trillion rupiah (S$191 million) to acquire Bank Commonwealth – the Indonesian subsidiary of the Commonwealth Bank of Australia (CBA).

CBA on Thursday (Nov 16) said it entered into a binding agreement to sell its 99 per cent shareholding in Bank Commonwealth to Bank OCBC NISP, an OCBC subsidiary in Indonesia.

In a separate statement, the Singapore lender said it also intends to acquire the remaining 1 per cent of Bank Commonwealth from its other shareholders. OCBC expects to merge Bank Commonwealth into Bank OCBC NISP after the acquisition is completed.

As there is little overlap in customer relationships between both banks, OCBC anticipates the proposed deal to create synergies and strength Bank OCBC NISP’s franchise value.

The move will also add scale to the subsidiary and deepen the group’s presence in the market.

Bank Commonwealth was established in 1997 as a CBA-Bank International Indonesia venture. It focuses on retail customers and corporate banking services for small and medium-sized enterprise segments, and has more than 1.2 million customers.

Its net asset value stood at 4.1 trillion rupiah, which works out to be around 0.7 per cent of OCBC’s total net asset value as at Sep 30, 2023. Bank Commonwealth’s net tangible asset value for the period stood at 3.5 trillion rupiah.

Glenn Thum, senior research analyst at Phillip Securities Research, said the acquisition is a “significant milestone” for OCBC, given that it is the first one under its current group CEO, Helen Wong.

Bank Commonwealth will also be OCBC’s first significant retail bank acquisition since it last bought Hong Kong’s Wing Hang Bank in 2014.

Most of OCBC’s acquisitions since have been in the wealth space. It bought National Australia Bank’s private bank in 2017, and its wealth subsidiary Bank of Singapore bought Malaysia’s Pacific Mutual Fund in 2019.

In comparison, its peers in Singapore have snatched up various banks in recent years – DBS bought Citigroup’s Taiwan retail business in 2022 and India’s Lakshmi Vilas Bank in 2020; UOB acquired Citigroup’s retail businesses in Malaysia, Thailand, Vietnam and Indonesia in 2022.

OCBC’s move is likely part of the bank’s bid to expand further into the region, apart from growing in China and Hong Kong, Thum said.

“This would allow them to capture the expanding Indonesian market and have a stronger foothold in the region,” he added.

Thum foresees that the acquisition will positively impact the bank – by growing its customer base, loan book, and net interest and fee income in Indonesia.

However, a research analyst at RHB expects that the acquisition will add less than 1 per cent to the group’s loans, deposits and total assets, and thus have little overall impact.

Nevertheless, the RHB analyst believes that the move will broaden OCBC’s customer base, offer cross-selling opportunities, as well as economies of scale for its Indonesian operations.

“Generally, the retail and SME segments in Indonesia can be lucrative, especially if asset quality remains favourable,” the analyst said.

Meanwhile, Thum noted that the acquisition was a way for OCBC to reduce its Common Equity Tier 1 (CET1) ratio to a more optimal level. OCBC’s CET1 ratio stood at 14.8 per cent as at Sep 30 and is currently the highest among the local banks.

“This is good as they are finding ways to spend their excess capital,” he said.

Post acquisition, Thum expects OCBC will still have the highest CET1 among the three local banks, given that its purchase is relatively small compared to its peers’ recent acquisitions.

UOB had acquired the Citi businesses in Asean for S$4.9 billion, while Citi’s Taiwan business had cost DBS S$956 million.

“This means there is still a possibility for a further upside to dividends as they look to spend their excess capital and lower their CET1 to more optimal levels,” Thum said.

For the purchase consideration, OCBC said it took into account the business prospects and Bank Commonwealth’s existing partnerships.

CBA expects to conclude the transaction in the second or third quarter of 2024. It noted that the sale of its shareholding is consistent with its strategy to focus on its Australia and New Zealand banking businesses.

OCBC said its subsidiary has sufficient financial resources, through its own internal cash, to fund the proposed acquisition. It does not expect the deal to have any material impact on the group’s net tangible assets, earnings per share or capital position for the financial year ending Dec 31, 2023.

Shares of OCBC were trading 0.8 per cent or S$0.10 higher at S$12.98 as at 4.39 pm on Thursday, following the announcement.

Malaysian bank CIMB and Japanese finance company J Trust were previously reported to be vying to acquire Bank Commonwealth, according to Reuters’ sources. Morgan Stanley, the financial adviser on the sale, had asked bidders to submit binding offers by early November, sources said.