Bendigo and Adelaide Bank buys WA Keystart loan portfolio

Bendigo and Adelaide Bank has bought a $1.4bn loan portfolio from WA’s low-deposit housing scheme Keystart.

Bendigo and Adelaide Bank chief Mike Hirst. Pic: David Geraghty

Bendigo and Adelaide Bank chief executive Mike Hirst has stressed the lender will not be acquiring souring Western Australian loans after buying a $1.4 billion portfolio from the state government’s low-deposit housing scheme Keystart, following an auction process where many other bidders pulled out.

Keystart was set up in 1989 to help low-to-medium income earners who are unable to save for a deposit or meet lending requirements of the major banks. The borrowers must meet Keystart’s “rigorous serviceability criteria” into homeownership.

Bendigo’s purchase from the state government for around 34 per cent of the $4bn total loan book is expected to be completed by early December.

Mr Hirst said the acquisition will increase the bank’s exposure to West Australian loans from 11 to 13 per cent and give the lender a chance to cross-sell its products to 6000 Keystart customers.

“Keystart has a long and successful history of providing residential loans to customers who satisfy rigorous serviceability criteria but do not have sufficient initial savings for a deposit,” Mr Hirst 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,” he said.

Mr Hirst also played down concerns the bank was picking up a souring portfolio. Bad and doubtful debts across the banking industry have been picking up recently, with arrears and delinquencies concentrated in regions exposed to the weak mining sector.

Western Australia and its economy have been particularly hard hit by the resources downturn. Employment levels have not increased since mid-2015, and house prices have fallen more than 10 per cent since peaking that same year.

The number of dwelling approvals has dropped by 40 per cent since 2014 while rental vacancy has reached its highest point in 25 years. Over the last June quarter, around one in five homes were sold for less than the previous purchase price.

“We will not be acquiring any loans that are more than one month in arrears,” Mr Hirst said. “The customers in the portfolio we are acquiring have, on average, a track record of meeting their loan repayments for more than five years.”

Bendigo said the average loan size of the portfolio was around $225,000, and all loans were variable rate and owner occupied. The average loan-to-value ratio is at 84 per cent and his two-third weighted towards houses in Perth. Thirty-three per cent of the book is in regional WA and only 0.4 per cent of loans are in the iron-ore dependent Pilbara and Kimberley region.

Keystart will continue to service the loans on behalf of Bendigo — one of the reasons other bidders, such as Pepper Group, pulled out of the auction process.