MELBOURNE, Australia— Australia & New Zealand Banking Group Ltd. is further scaling back in Asia, selling its retail and wealth-management businesses in five markets to focus instead on institutional banking in the region.
Facing the need to invest more to build up the Asia retail business, ANZ said Monday it had instead agreed to sell operations in mainland China, Hong Kong, Indonesia, Singapore and Taiwan to Singapore’s DBS Group Holdings Ltd. The businesses include about 11 billion Australian dollars (US$8.36 billion) in gross loans and A$17 billion in deposits.
Major banks in Australia and around the world are focused on building capital and improving returns under the pressure of sluggish revenue growth, low interest rates and rising funding costs. ANZ, which expanded in Asia more energetically than its local peers, said it continues to look at opportunities to exit other businesses.
“It is all about focus,” Chief Executive Shayne Elliott said, adding that the bank remains committed to Asia but is consolidating resources in core areas such as trade finance, debt capital markets and cash management.
Returns and capital ratios have become increasingly important for all major banks, and Asia is a competitive market, served by a large number of local banks plus global heavyweights, said David Ellis, an analyst at investment-research firm Morningstar. He said ANZ has conceded it lacks the scale to drive its retail businesses.
Although the slimming in Asia was specific to ANZ, all banks are trying to refocus for higher returns, said Omkar Joshi, an investment analyst at Watermark Funds Management.
National Australia Bank Ltd., another of Australia’s “Big Four” lenders, earlier this year spun off and listed its U.K. banking business as CYBG PLC, and last year completed the sale of its U.S. Great Western Bancorp Inc. unit—giving up income to bolster its capital position, strengthening buffers to meet future crises as encouraged by regulators.
Neither ANZ nor DBS disclosed the price of their deal, although Melbourne-based ANZ said it represented a premium to net tangible assets of about A$110 million. It expects to book a net loss of about A$256 million on the sale, including write-downs of software, goodwill and fixed assets.
The value of the businesses being taken over by DBS is relatively small for ANZ, dwarfed by the approximately A$4.1 billion carrying value of its collective stakes in Malaysia’s AMMB Holdings Bhd., PT Bank Pan Indonesia, Shanghai Rural Commercial Bank and China’s Bank of Tianjin.
Mr. Elliott said Monday that some other countries in Asia are still under review, including Vietnam.
“It is clear the environment we face has changed and to make a real difference for our retail and wealth customers, we would need to make further investments,” Mr. Elliott said. “Further investments do not make sense for us given our competitive position and the returns available to ANZ.”
During eight years under former CEO Mike Smith, ANZ became an Asia-Pacific lender—with operations in 34 countries—as he leveraged his experience in Asia to launch businesses and buy stakes in local banks. The bank set a target to get up to 30% of its earnings from its Asia-Pacific, European and Americas division by 2017.
Mr. Elliott took over in January with the task of shifting the Asian strategy. The bank dropped the earnings target and has sought to divest some of its minority stakes. In March, Mr. Elliott shook up the wealth-management business, including transferring control of the Asian operations to New Zealand CEO David Hisco, who had gained Asia retail operations in January.
In 2013, Australian regulators introduced rules that required banks to deduct the entire value of overseas minority investments from Tier 1 capital. More recently, the prudential regulator has required the big banks to set aside billions of dollars more against potential home-loan losses, and it continues to consider changes to capital settings.
Shedding the businesses being bought by DBS will improve ANZ’s closely watched common equity Tier 1 capital ratio by as much as 0.2 percentage point, the bank said. Analysts at Macquarie estimated the sale would trim earnings per share by about 2% in the year ending September 2018 and by 1% the year after. The businesses generated a net profit of A$50 million in the last financial year.
Most people currently employed by the businesses will join DBS. The deal remains subject to regulatory approvals in each market, ANZ said.
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