The Australian newspaper has reported that the portfolio of dealer and car loans could sell for up to $2 billion.

The portfolio includes $3.9 billion of dealership financing loans bought by Westpac from Lloyds Banking Group in 2013 and the St George car business, The Australian said.

Morgan Stanley investment bank has been recruited by Westpac to handle the sale of the portfolio.

At the moment, the front runner for the business is said to be HNA Group of China, which also has substantial shareholdings in tourism, finance, real estate and logistics. It also has aviation interests and is the main shareholder of Virgin Australia.

HNA also bought ANZ’s New Zealand car loan finance business UDC Finance in January this year.

Westpac is believed to be selling the auto portfolio as part of a debt reduction plan ahead of a January 2020 capital adequacy target set by the Australian Prudential Regulation Authority (APRA). The targets aim to increase the liquidity of banks under what APRA terms “safety reserves”.

Westpac had a tier one capital ratio of 10 per cent as at March 31, its most recent half-yearly reporting date, while APRA wants to see the banks get to at least 10.5 per cent.

In 2013, Westpac bought Lloyds’ Australian asset finance business, CFAL, and its corporate loan portfolio, BOSI, for $1.45 billion.

CFAL’s motor vehicle finance and equipment finance business has total receivables of $6.8 billion across 213,000 consumer and commercial customers.

It was bought to complement St George’s existing motor vehicle finance business given CFAL’s business features regional and rural Australia, while St George’s business is focused on metropolitan areas.

The ANZ has also recently moved some of its car loan business. In October 2015 it sold its dealer finance portfolio, Esanda Dealer Finance, to Macquarie Group Limited for $8.23 billion.

The portfolio included net lending assets of $7.8 billion, comprising retail point-of-sale auto finance of $6.2 billion, and wholesale bailment facilities and other Esanda branded finance offered to motor vehicle dealers of $1.6 billion.

ANZ also sold its New Zealand car loan finance company UDC Finance to HNA Group for $625 million in January this year.

By Neil Dowling