29/09/2016 - 10:50

Bank buys $1.35bn Keystart loan book

29/09/2016 - 10:50

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The state government has sold $1.35 billion of Keystart housing loans to Bendigo and Adelaide Bank, but the divestment wasn’t as big as it had hoped.

Bank buys $1.35bn Keystart loan book
Bendigo and Adelaide Bank managing director Mike Hirst.

The state government has sold $1.35 billion of Keystart housing loans to Bendigo and Adelaide Bank, but the divestment wasn’t as big as it had hoped.

Treasurer Mike Nahan announced this morning that the state government had sold about 31 per cent of the low-income finance provider’s loan book to BAB.

When the sale process was launched early this year, he said the government was targeting up to a 40 per cent divestment of Keystart’s $4 billion loan book, equal to about $1.6 billion.

BAB paid a slight 0.2 per cent premium of $2.7 million for the loan book stake.

The deal will be completed by December.

“When finalised, this will mark the second transaction in the state government’s asset sales program and will achieve a reduction in gross debt,” Dr Nahan said.

“This also represents an important step in ensuring a sustainable future for the home loan program by reducing its reliance on government borrowings.”

The transaction will not affect net debt as the reduced financial liability of the borrowing is offset by reduced financial assets. 

Commenting on the size of the divestment, Dr Nahan told Business News the loan book was constantly moving with new loans being approved and existing loans being repaid or refinanced.

“The final value of the transaction reflects those loans considered suitable for the assignment from both party’s perspective,” he said.

BAB managing director Mike Hirst said the customers in the portfolio the bank was acquiring had, on average, a track record of meeting their loan repayments for more than five years.

“We will not be acquiring any loans that are more than one month in arrears,” he said.

Mr Hirst said the acquisition increased the bank’s proportion of its loan book in WA from about 11 per cent to 13 per cent.

“We will also have potential to provide 6,000 Keystart customers with a range of complementary products and services,” he said.

“These customers have proven to be very reliable in repaying their loans and Keystart has an outstanding record of low losses compared to the broader market."

Housing Minister Brendon Grylls said it would be business as usual for Keystart customers.

“There will be no change to the service levels or terms and conditions for existing Keystart customers and the transaction will not change Keystart’s existing interest rate setting policy, lending eligibility criteria or rigorous loan assessment process,” he said.

“The government remains committed to supporting Keystart, which will continue to play a critical role in the government’s Affordable Housing Strategy and ensure Western Australians have access to low deposit loans that allow them to enter the housing market.”

Keystart was established by the state government in 1989 to provide low income earners the ability to own their own property, even if they cannot meet the requirements of the major banks.

Michael Lishman, Stephen O’Shaughnessy, Jenny Seabrook, Tom Waddell and Oliver Zuks of Gresham Partners acted as lead advisers to the state government for the loan book divestment.

Herbert Smith Freehills acted as legal adviser.

 

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