Aug. 4 (Bloomberg) -- Australia & New Zealand Banking Group Ltd., which today agreed to buy Asian assets from Royal Bank of Scotland Group Plc, is prepared to take on Citigroup Inc. and HSBC Holdings Plc as it expands in the region.

“ANZ is going to be a regional player,” Chief Executive Officer Michael Smith, who previously ran HSBC’s Asian division, said in a Bloomberg Television interview. “I don’t want to take on HSBC or a Citigroup in Latin America or in the States or in Europe, but if it’s in our backyard, in this region, then yes, we’ll take them on.”

ANZ Bank, Australia’s fourth-biggest lender, will pay $550 million for the RBS businesses in Singapore, Taiwan, Indonesia, Hong Kong, the Philippines and Vietnam, the Melbourne-based bank said in a statement to the stock exchange. ANZ Bank shares added 3 percent to A$19.57 at the close in Sydney, the highest since June 2008, taking their rally this year to 28 percent.

RBS, based in Edinburgh, is selling or shutting businesses in two-thirds of the 54 countries in which it operates after posting the biggest loss in British corporate history last year. The acquisition will help Smith toward his aim of doubling the proportion of income from Asia to 20 percent.

“It’s a positive small step,” said Mark Nathan, who helps manage about A$4 billion ($3.4 billion) at Fortis Investment Partners in Sydney. “Australia is a limited growth market and if the banks are going to grow they are certainly going to look offshore. They’ve effectively taken over the New Zealand market and Asia is the next logical step.”

‘Stepping Stone’

ANZ Bank, which has been focused on the institutional business in Asia, is looking to broaden its commercial and consumer banking offerings in the region “where it makes sense,” Smith, 52, said.

Smith is expanding abroad after ANZ Bank’s profit fell 28 percent to A$1.42 billion in the six months ended March 31, from a year earlier, as credit impairment charges almost doubled to A$1.44 billion.

The RBS businesses represent 54 branches with $3.2 billion in loans and $7.1 billion in deposits serving about 2 million clients, ANZ Bank said in the statement. The bank, advised by Credit Suisse Group AG, is paying 1.1 times the recapitalized book value of the RBS assets, it said.

“This is not transformational, this is a stepping stone along the vision that we have,” he said.

Even before the RBS deal, ANZ Bank had more investments in Asia than its Australian rivals, including stakes in Shanghai Rural Commercial Bank, Saigon Securities Inc. and Malaysia’s AMMB Holdings Bhd.

Asian Expansion

“We have to build up our expertise, our competence within the region,” Smith said. “So there will be what I would call a series of bolt-on deals. I’d like to bulk up a bit in Australia as well because I think there is still opportunity there.”

ANZ Bank, which raised A$4.7 billion in share sales since May, said its Tier 1 ratio, a key measure of financial strength, will be 9.5 percent after the purchase, the highest among the nation’s four biggest lenders. The bank has an Aa1 credit rating from Moody’s Investors Service, the second-highest investment grade, and an AA rating at Standard & Poor’s.

“They still have sufficient capital to make additional small acquisitions,” Nathan said. “The expectation isn’t that they will make company-changing, single acquisitions because those opportunities aren’t easy to come by. A large part of the growth will be organic from here on.”

India, China

In China, ANZ Bank owns 19.9 percent of Shanghai Rural Commercial Bank and 20 percent of Tianjin City Commercial Bank. In March, the lender said it plans to open 20 branches in China by 2012 and is applying for regulatory approval to establish a wholly owned, locally incorporated bank subsidiary in the world’s third-biggest economy.

Elsewhere in Asia, ANZ Bank owns 10 percent of Vietnam’s Sacombank, 38 percent of PT Panin Bank in Indonesia, and 40 percent of a credit-card venture with Metropolitan Bank & Trust Co. in the Philippines. It also started a bank in Cambodia through a venture with Royal Group.

Smith said he decided against pursuing RBS’s Indian assets due to potential regulatory hurdles, a declining credit outlook in the nation, and a lack of management expertise. The price for the RBS assets in China was “just a bit too high and I couldn’t see how we could extract value,” Smith said.

RBS remains in “advanced discussions” with bidders for the remaining assets it has decided to sell in Asia and will make further announcements when appropriate, the bank said in a statement on its Web site. It’s being advised by Morgan Stanley.

RBS retains a wholesale banking presence in 11 markets across Asia, and RBS Coutts, its international wealth management business, will maintain its headquarters in Singapore, it said. RBS shares climbed 3.5 percent in London yesterday.

To contact the reporter on this story: Malcolm Scott in Sydney at Mscott23@bloomberg.net

Last Updated: August 4, 2009 02:29 EDT