Australian Banks Could Become Targets of Foreign Lenders

Post by Sharat on September 7, 2009 · Under Australian Economy, Business News, Company News, International Business News, Mergers & Acquistions, banking · Comment

The Australian banking market could increasingly become the target of expansion plans of major Asian lenders as they follow the lead of companies they lend to into the country, potentially placing smaller regional Australian banks and even the majors on the list of acquisition targets, according to Credit Suisse.

Of the Big Four, ANZ has been the most active in expanding its Asian footprint, however CBA recently subscribed to an equity follow on offer to maintain its stake in Chinese lender, Bank of Hangzhou.

Malcolm Ezzey of Credit Suisse in an interview with The Australian, said that many Asian lenders had survived the global financial crisis in good shape, and are now seeing the recovery in asset prices as an opportunity to expand by acquiring targets, that did not do so well.

“It’s not just the Australian banks trying to develop an Asian strategy. The Asian banks are increasingly looking to grow their footprint in Asia, and Australia is a part of that. I think from here there will be a significant investment from the Asian banks into Australia and the banking system.” Mr. Ezzy said.

Credit Suisse’s Rob Jesudason said that the fact that the Big Four in Australia were four of only 10 AA rated financially institutions, and the Australian banking system was so robust, made it a natural investment destination and its lenders targets for offshore investment.

“On the basis of wanting to grow beyond your natural home market one of the major drivers of that is to follow your customers. If you look at the investment by large Asian companies in Australia — if you’re a Chinese bank and your main corporate customers are investing in Australia, then it’s quite a natural next step to follow your customers into different markets.” Mr. Jesudason said.

Mr Jesudason said with the rising investment into Australia, there was increasing likelihood the major banks would step up their Asian investment as well.

“It makes enormous sense for the Australian banks to follow their customers into China, India and Southeast Asia. There is also the integration between the Australian business community and the Asian business community and that will result in regional banks doing more business.”

Analysts anticipate that Australian lenders will begin to use the high levels of tier-one capital built during the financial crisis to fund overseas acquisitions. The top four banks have tier-one capital ratios, on average, of 8.5 per cent.

Mr. Ezzy says he believes that though it was unlikely that lenders would reduce their capital ratios to pre-crisis levels, they may face shareholder pressure to add value with the cash on hand.

“I think that the capital raisings that the banks have done in the past 12 months were absolutely necessary to ensure that they maintain their investment capability,” Mr Ezzy said. “We will never return to the historical lows of tier-one ratios we saw going into the crisis, but I think the right amount of capital lies somewhere in between where we were and where we are now.”

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