Bendigo and Adelaide Bank will pay about $130 million for Bank of Cypress Australia, which caters to the Greek and Cypriot communities in NSW, Victoria and South Australia.
Bendigo has also announced it aims to raise $120 million, part of which will fund the acquisition, through the sale of new shares.
The bank said the purchase of Bank of Cypress Australia would provide a strategically complimentary addition to its broader network.
Bank of Cypress Australia has 14 branches and interest bearing assets of $1.4 billion.
Bendigo managing director Mike Hirst said he was confident of improving the earnings of the acquired business.
"It is predominantly funded by retail deposits, maintains a conservative risk profile with 99 per cent of the loan book secured against property, and has an excellent credit history," he said in a statement today.
Bendigo's capital raising venture will involve the issue of new shares to institutional investors at a price of $8.45 per share.
Bendigo shares were in a trading halt today, and last traded at $9.00.
Retail shareholders will be able to participate in a non-underwritten share purchase plan in early 2012, the bank said.
About $100 million of the proceeds will be used for the Bank of Cypress Australia purchase, with the remainder to strengthen Bendigo's balance sheet and fund growth opportunities.
Mr Hirst said Bendigo's margin lending business was suffering from a reduced portfolio due to market volatility and a lack of investor appetite for risk.
The bank will write down $95 million in good will on the margin lending business, which will impact Bendigo's statutory earnings.
However it would not impact first half cash earnings, which were forecast to be similar to those in the same period last year, Mr Hirst said.
"We remain convinced that margin loans are appropriate products, with a legitimate place in the investment portfolios of many of our customers," he said in a statement.
"However, the impairment testing required under current accounting standards is prescriptive about how this goodwill should be accounted for, and we have therefore made this decision.
"Ironically, this write-down will provide a moderate boost to our ongoing return on equity."
