"Opportunistic" deal nets non-major $1.35bn in loans

by Phil McCarroll30 Sep 2016
Non-major lender Bendigo and Adelaide Bank has agreed to buy more than a quarter of the value of a government-backed lender’s loan book.

Bendigo and Adelaide Bank yesterday announced it had purchased $1.35bn worth of loans from Western Australian government-owned lender Keystart, whose loan book totalled around $4bn before the deal. Keystart borrowers are typically first home buyers who do not have sufficient initial savings for a deposit.

Bendigo and Adelaide Bank paid a premium of $2.7m for the loans.

Speaking to Australian Broker, Bendigo and Adelaide Bank chief financial officer Richard Fennell said there were two main factors behind the purchase.

“Although we had 11% of our loan book in WA, we are still very heavily exposed in South Australia, Victoria and to a lesser extent Queensland, so it helped us balance out the book a little better,” Fennell told Australian Broker.  

“It also gives us access to 6,000 customers that are already receiving a single product from Keystart and it gives us an opportunity to introduce them to our full suite of services and products. Obviously the opportunity to pick up 6,000 customers at a modest premium was something we were happy to pursue,” he told Australian Broker.

Fennell said the bank had carried out a strong due diligence process before purchasing the loans and had set strong criteria around which loans it took up.

The pool of loans purchased by Bendigo and Adelaide Bank are all variable rate owner occupied loans with an average seasoning period of five years and are no more than a month in arrears.

Two-thirds of the loans are located in Perth, with less than 1% located in the Pilbara and Kimberley regions.

Fennell said the deal was somewhat “opportunistic”, however he didn’t rule out similar deals in the future.

“We’ve always got our eyes open for the opportunity to bolt on deal that fit us strategically and economically,” he told Australian Broker.

“When these sorts of opportunities come up we’re very happy to have a look at them and if they meet those key factors aligning strategically with our existing business and the economic and risk stack up then we’re generally going to be competitive in that process.”

As a result of the deal, Bendigo and Adelaide Bank have also announced a non-underwritten share purchase plan (SPP) to raise additional capital.

“It’s really just to offset the additional capital we have to set aside for this purchase. So it’s just so we can maintain our capital ratio,” Fennell told Australian Broker.  

“With an SPP it’s quite challenging to predict things, but we’d be pretty confident of raising at least $40m of capital. We’ve never through an SPP raised less than around $44m or $45m.”