OCBC buys Australia bank’s retail, wealth business in Singapore, Hong Kong

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.