Australia & New Zealand Banking Group Ltd.'s sale of its insurance business to Zurich Insurance Group AG will boost the Australian bank's capital position and support its credit profile, despite the resulting increased reliance on the domestic retail banking business, according to analysts.
"By itself, additional concentration would generally increase the risk profile of a bank, but in this case we think the greater focus given to core businesses offsets this risk," said Tim Roche, an analyst at Fitch Ratings.
ANZ's announced deal to sell OnePath Life Ltd. to Zurich Insurance for A$2.85 billion follows the sale of its pensions and investments and aligned dealer groups businesses to IOOF Holdings Ltd. for A$975 million, which was announced in October.
Both deals are part of the bank's divestment of some of its Wealth Australia division, with proceeds from the process totaling A$3.83 billion to date. ANZ launched a strategic review of its wealth businesses in Australia and New Zealand in late 2016.
Fitch said ANZ's move is part of a sectorwide trend in Australia to focus on core banking businesses in light of increasing capital requirements and challenges in the life insurance sector.
As a result of the divestment, "ANZ Bank can focus on its core businesses of retail banking, particularly home lending and household deposits; [small and medium-sized enterprise] banking; and trade and capital flows in the Australasian region," wrote David Ellis, a bank analyst at Morningstar, in a report.
Completion of the life insurance sale is expected to add 65 basis points to ANZ's consolidated common equity Tier 1 capital ratio, which stood at
The upside to the sale of Wealth Australia is the boost given to ANZ's common equity Tier 1 capital ratio to a pro forma level of approximately 12%, which is significantly above the Australian Prudential Regulation Authority's "unquestionably strong" requirement of 10.50%, Ellis said.
The bank will incur a loss of approximately 3% in earnings from the sale of its wealth business, Ellis calculated.
ANZ expects the combined sale to be completed in late 2018, subject to regulatory approval. ANZ and Zurich will also enter into a 20-year strategic alliance to offer life insurance products through the Australian lender's distribution channels.
