The ANZ-Suncorp Deal: What It Means for the Sector

Melbourne-based ANZ has announced an offer to acquire Brisbane-based Suncorp Group’s banking arm, Suncorp Bank, for $4.9 billion, which Suncorp Group has accepted. The takeover is still subject to numerous tiers of regulatory approvals, including from state and federal governments and the ACCC.  ANZ has cited Suncorp Bank’s attractive customer base and commercial and retail presence in Queensland as the motivating factors behind the offer and ANZ expects for the ‘acquisition to [be] complete[d] in the second half of calendar year 2023’.

ANZ expanding its business in a time of uncertainty

ANZ's offer represents the largest deal in Australia’s banking landscape in over a decade, following on from the fallout of the global financial crisis, and represents a shift in ANZ’s focus back to the domestic market. ANZ’s refocus on domestic operations has corresponded with a slowdown of China’s economic growth.

The state of Queensland represents a lucrative market for ANZ. The National and Regional Commercial Banks industry in Australia is currently in the mature stage of its economic lifecycle, and existing players can use acquisitions as an effective means to generate growth in an established industry. ANZ’s expansion, particularly in its retail lending operations, is anticipated to benefit the company’s economies of scale and profitability.

The buyout is expected to ‘boost ANZ's mortgage book by A$47 billion to A$307 billion’ and represents a significant move into the Mortgages industry. The offer has coincided with rising interest rates and concerns around housing market corrections. Suncorp Bank also provides significant agribusiness banking and commercial (including SME) financing services, which ANZ is likely to benefit from.

ANZ has sold over 29 businesses and undergone significant simplification in order to prepare for an acquisition of this magnitude. However, there is the possibility that the ACCC may block the acquisition on the grounds that it is likely to have the effect of ’substantially lessening competition’.

As the acquisition does not appear to impinge on the ACCC’s ’four pillars’ policy and there are precedents across other industries, such as superannuation and media, there is potential for the deal to go ahead unimpeded. However, it is more likely that the deal will be given the green light subject to further conditions.

What does the move mean for borrowers?

Traditionally mid-market firms, like Suncorp Bank and Bank of Queensland, have shown greater flexibility with their rates and terms. This flexibility has given them some attraction as people have sought the right conditions to suit their loans. With Suncorp Bank coming under the ownership of the big four, it's likely that customers will have less choice and that the influence of the larger players in the market will grow. Therefore, the move is anticipated to place upward pressure on residential housing loan rates and downward pressure on mortgage affordability.

Australia’s big four banks have received scrutiny in the past for their practices with regards to competition and market consolidation. The 2018 inquiry regarding Competition in the Australian Financial System noted that:

There is evidence that [the major banks] have sustained prices above competitive levels, offered inferior quality products to some groups of customers (particularly those customers unlikely to change providers), subsumed much of the broker industry and taken action that would inhibit the expansion of smaller competitors in some markets.

Those most likely to be impacted by potential rises are retail customers and operators in agribusiness and residential property. These customers can shop around for different terms with other mid-market options or switch between the other big banks in order to ensure they are getting the best deal possible. The market is still competitive for smaller loans, with other smaller providers who can offer short-term favourable loans.

What does the move mean for other banks?

The acquisition is likely to considerably influence competition and market share concentration for the National and Regional Commercial Banks industry. Currently ANZ is considered the smallest of the big four banks by market share.

Mortgage and retail deposit figures suggest that a combined ANZ-Suncorp could potentially overtake NAB as the nation’s third-largest bank.

Pending approval, the acquisition is likely to affect more than just market share concentration. Strategies from the other big four banks are also likely to see some change;

• ANZ may potentially implement some of the product choices that Suncorp currently offers to the market, which could cause the other big banks to follow suit in order to match their offerings.
• CBA, Westpac and NAB may aggressively pursue acquisition strategies in order to maintain competitiveness and increase their market share.
• Other mid-tier firms like Bank of Queensland, Bendigo Bank and Macquarie Bank may become more attractive for other firms. However, because of the Suncorp acquisition, other moves to buy mid-tier firms would be heavily scrutinised and investigated.

Outside of the big four, the move is likely to increase barriers to entry and enhance competition for the industry’s smaller players. Smaller players are forecast to encounter difficulty competing with the pricing and range of products that ANZ is likely to be able to offer.

Smaller players and new entrants may continue to pursue specialties in niche areas or focus on offering new products as a means to differentiate themselves from heightened Industry competition.  However, the success of innovative or alternative banks is not guaranteed, such as in the case of Volt, Australia’s first all-digital bank, which announced its closure in June 2022 citing an inability to secure funding in the ‘current challenging global economic climate’.