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Regional bank report identifies likely acquisition targets

A branded retail brokerage has been earmarked as a potential acquisition target for Bendigo and Adelaide Bank and Bank of Queensland.

Research by Morningstar named Yellow Brick Road, Wide Bay Australia, Mystate and Bank of Sydney as potential acquisition targets for the regionals.

“Distribution is crucial, and while Bank of Queensland purchased Virgin Money to penetrate online channels, the acquisition of Yellow Brick Road, which offers lending and accounting and tax services, would be a new customer channel,” according to the Morningstar report.

“Macquarie Group’s 15 per cent shareholding would make a deal difficult, given Macquarie would potentially lose the banking, wealth management and mortgage funding services it currently provides Yellow Brick Road,” it said.

Released Tuesday, the Morningstar report, Australian Regional Banks: The Not-So-Ugly Ducklings, analysed the position of the regionals in Australia’s major bank-dominated mortgage space, where Bendigo and Adelaide Bank, Bank of Queensland and Suncorp each account for two to three per cent of the market.

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The report noted that while the regional lenders offer lower standard variable rates than the majors, the big four have maintained a stable market share of 83 per cent.

The average rate on a major bank variable home loan is 5.1 per cent, 30 basis points higher than the average regional lender’s 4.8 per cent, the report found.

“While we don’t believe the regionals take on higher-risk residential loans, they do need to price more aggressively,” the report said.

“It also pushes the regionals to acquisitions in order to achieve growth,” it said.

Looking at other lenders, the report highlighted the successful growth strategies of ING DIRECT and Macquarie in the residential mortgage market.

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“ING DIRECT has been extremely successful during the past 15 years, as it targeted customers happy to bank online, while Macquarie has capitalised on partnerships with advisor and broker businesses such as Yellow Brick Road,” the report said.

Morningstar analysts concluded that while M&A will be central to the regionals growth moving forward, the next logical step will be diversifying into wealth management.

Australian resident loans market share 

Regional bank report identifies likely acquisition targets
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