Australia's Bank of Queensland bulks up with $1.1 billion ME Bank purchase

(Reuters) - Bank of Queensland Ltd will buy ME Bank, a digital lender owned by 26 industry pension funds, for A$1.33 billion ($1.05 billion), the pair said on Monday, as the second-tier lender chips away at the lead of Australia’s “Big Four” banks.

The deal will double the size of the Brisbane-based regional bank’s retail arm, taking deposits to more than A$56 billion, and boost the division’s contribution to earnings to more than 50% from 36%, BoQ said.

Even with the deal, BoQ will still lag far behind the Big Four banks, which control about three-quarters of the lending market and have glided through the pandemic better than some of their international peers.

The smallest of the four, Australia and New Zealand Banking Group, has over A$320 billion in deposits according to December data from the Australian Prudential Regulation Authority (APRA).

ME Bank chairman James Evans said the deal “represents a permanent shift for the better in the Australian banking landscape.”

ME Bank’s pension fund backers, including the country’s largest, AustralianSuper, endorse the deal, it said.

BoQ will fund the deal through a A$1.35 billion equity raise at A$7.35 a share.

“This is a defining acquisition in our ongoing transformation of BoQ,” Chief Executive George Frazis said in a statement.

BoQ’s digital capabilities also stand to benefit at a time when larger banks are either improving their digital presence or partnering with fintech companies.

ME Bank, founded in 1994, posted an underlying profit of A$123.9 million in fiscal 2020 with a loan book of A$25.5 billion and about A$17.2 billion in deposits at the end of June.

In an attached trading update, BoQ said it expects half year cash profit growth of 8% to 10%, while loan deferrals have declined.

($1 = 1.2702 Australian dollars)

Reporting by Nikhil Kurian Nainan in Bengaluru; Editing by Peter Cooney and Richard Pullin