SYDNEY: Novatti Group Limited (ASX: NOV) has entered into a binding agreement with Eurus Capital Pty Ltd for the sale of 100% of its shares in International Bank of Australia (IBOA Group Holdings Pty Ltd) for $2.87 million.

This decision was made as part of Novatti’s ongoing strategic review of all business units and subsidiaries in the Novatti group.

It believes that International Bank of Australia will need significant additional capital and support if it is to satisfy the Australian Prudential Regulatory Authority (APRA) that it is operationally and financially ready to commence business as a bank and that APRA should grant it a full authorised deposit-taking (ADI) licence.

Under the terms of its current restricted authorised deposit-taking (RADI) licence, IBOA is approaching a critical deadline, and is required to obtain an ADI licence or to cease its banking business by 2 November 2024. APRA has stated that extensions of RADI licences will only be granted in exceptional circumstances.

Novatti’s interest in IBOA was subject to its strategic review of all business units and subsidiaries, undertaken since the start of FY24.

This review found the interest in IBOA was unlikely to contribute to Novatti’s long term financial goals, particularly conflicting with Novatti’s target of positive operating cashflow.

Novatti CEO, Mark Healy, said: “The barriers to entry for new banks in Australia are very high. IBOA has faced many challenges and adverse and unexpected circumstances outside of its control.

In particular, the pause in issuing new banking licences announced in March 2020 substantially delayed IBOA’s development of its business, adversely impacted its go-to-market strategy, and increased its funding requirements.

“With the upcoming regulatory deadline for IBOA to either obtain a full ADI licence or to hand back its RADI licence, IBOA will require significant additional capital.

As the majority shareholder, after reviewing alternative options to maximise the economic return from Novatti’s interest in IBOA, the Novatti board was not prepared to provide the additional capital required to underwrite IBOA’s financial independence and enable it to obtain a full ADI licence.