S&P says the merger of Greater Bank and Newcastle will solidify their credit profile

  • By Elizabeth Fry

The proposed merger of Newcastle-based Greater Bank and Newcastle Permanent will likely solidify the combined entity's competitive position, S&P Global Ratings said on Wednesday. 

The planned merger will create the country's largest mutual lender with a combined balance sheet of about $20 billion and embed the group as a dominant lender in the Hunter Valley region of New South Wales.  

It will provide opportunities for the group to realise operational efficiencies. 

“We foresee no material differences in the overall business position of the combined entity compared with those of other large Australian mutual banks, as well as other somewhat larger banks in Australia," S&P added. 

However, the ratings agency said any diversification benefits resulting from the merger will likely be limited since the lending profile of both entities is focused on residential mortgages. Further, geographically, the business will remain centered mostly within the Hunter Valley region. 

“In our view, the management teams are well placed to tackle the elevated operational risks of the integration,” S&P said, adding that the low-risk nature of the lending activities and simple operations further support its assessment. 

“The capital position of the merged entity should remain very strong, consistent with our current assessments on both mutual lenders. 

“We expect the combined entity will maintain a risk-adjusted capital ratio above 15 percent. 

Regional powerhouse 

On Tuesday, Newcastle Permanent and Greater Bank announced a plan to merge and form what they describe as a “regional powerhouse” with assets of $20 billion and a combined customer base of 600,000 people. 

The two banks have signed a Memorandum of Understanding under which they will remain as standalone brands. Under the terms of the proposed deal, no redundancies will result from the merger for at least two years and the merged group will retain a combined network of 100 branches for the same period.