The Melbourne, Australia-headquartered Australia and New Zealand Banking Group (ASX:ANZ) revealed on Tuesday they will be selling their 20 percent stake in the Shanghai Rural Commercial Bank of China. It is going to fetch ANZ $1.3 billion or 1.8 billion Australian dollars. The sale is expected to be closed by the middle of 2017.
It was also learned that two companies are picking up the stake that ANZ is leaving. They are Shanghai Sino-Poland Enterprise Management Development and China COSCO Shipping. They will both acquire 10 percent of the Shanghai-based bank. The agreed upon price-to-book ratio will be 1.1 times of the assets of Shanghai Rural as of December 2015. The Australia and New Zealand Banking Group had purchased the stake in this Shanghai-based bank in 2007 with plans of expanding in China.
ANZ Reducing Exposure in Asia
ANZ has been looking to reduce their exposure in Asia in recent times, and this move is being seen as an extension of that effort. In fact, the bank has already sold off their retail and wealth businesses in Indonesia, China, Taiwan, Hong Kong, and Singapore to the DBS Group, saying they want to focus on institutional banking in the region.
Graham Hodges, the Deputy Chief Executive at ANZ, issued a statement that said, “The sale reflects our strategy to simplify our business and improve capital efficiency”.
Analysts are saying that it is becoming difficult for banks like ANZ to hold minority stakes in lending agencies such as Shanghai Rural because of new rules where they have to set aside equity capital for these investments. So it’s likely that there are going to be more of such moves this year.
ANZ Trying to Sell Off Stake in Other Asian Banks Too
Shayne Elliott, who took over as the Chief Executive a year back has already stated they will keep looking at every opportunity to exit businesses in Asia. Apart from Shanghai Rural, ANZ also has a stake in Bank of Tianjin of China, PT Bank Pan of Indonesia, and AMMB Holdings of Malaysia. Shayne took over from Mike Smith, the former CEO.
The new ANZ boss says the environment has changed. “We will have to make further investments, and at this point, this doesn’t make sense for the Australian bank”.
Banks worldwide are now focusing more on building capital and improving their returns. They are under pressure because of low revenue growth, rising funding costs, and low-interest rates.