Bendigo Bank to Add $2.7 Billion in Loans, Boost ROE by Up to 40bps

Strategic Expansion Through Acquisition

Bendigo and Adelaide Bank (ASX, BEN) has announced a significant step in its growth strategy with the agreement to acquire RACQ Bank’s retail lending assets and deposits. The transaction, subject to regulatory approval, is expected to complete in the first half of 2027 and involves a portfolio valued at book value, comprising approximately $2.7 billion in loans and $2.5 billion in deposits.

This acquisition aligns closely with Bendigo Bank’s long-term objectives, particularly its 2030 return on equity (ROE) target. By integrating RACQ Bank’s retail book, Bendigo Bank not only expands its customer base by over 90,000 accounts but also strengthens its deposit franchise, with retail deposits making up 92% of the acquired lending portfolio. This is a strategic move to optimise funding costs and improve balance sheet resilience.

Financial and Operational Implications

The deal will be funded from Bendigo Bank’s cash reserves and is expected to consume around 35 basis points of Common Equity Tier 1 (CET1) capital, primarily due to credit risk weighted assets associated with the acquired portfolio. The bank anticipates net interest income from the portfolio to be in the range of $50 to $55 million annually, with incremental servicing costs estimated between $12 and $14 million before tax.

Integration costs, including migration and transaction expenses, are forecasted at $25 to $30 million after tax, mostly incurred before completion. However, Bendigo Bank expects the acquisition to be accretive to both ROE and cash earnings per share (EPS), projecting an uplift of 35-40 basis points in ROE and approximately 4-5 cents in cash EPS on an annualised basis.

Leveraging Technology and Geographic Diversification

A key enabler of this acquisition is Bendigo Bank’s ongoing simplification to a single core banking system, scheduled for completion by the end of 2025. This technological consolidation is expected to facilitate a smooth integration of RACQ Bank’s portfolio, minimising incremental costs and leveraging existing migration expertise.

Geographically, the acquisition increases Bendigo Bank’s exposure to Queensland, raising the state’s share of the residential lending portfolio from 15% to 18%. This diversification supports the bank’s strategy to balance its lending footprint across Australia and reduce concentration risk.

Looking Ahead

CEO Richard Fennell emphasised the complementary nature of RACQ Bank’s strong deposit franchise and member focus with Bendigo Bank’s customer-centric approach. The acquisition is expected to enhance shareholder returns through cost efficiencies and broadened geographic reach. A strategic referral agreement will commence post-completion, further cementing the partnership between the two institutions.

While the transaction awaits regulatory approval and customary conditions, it marks a clear signal of Bendigo Bank’s commitment to sustainable growth and operational efficiency in a competitive banking landscape.