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Bank wannabe Heartland NZ details its loans by type and size, remains mum on progress of bank ambitions

Posted in News

By Gareth Vaughan

In a chunky investor presentation bank wannabe Heartland New Zealand has disclosed it has a total number of customer accounts across its three key business areas, combined, of just under 50,000.

Heartland says it has 45,000 retail and consumer accounts with an average loan size of NZ$21,000, 1,720 rural accounts at an average loan size of NZ$266,000, and 2,920 business accounts with an average loan size of NZ$177,000.

All up the building society, created in January 2011 through the merger of Marac Finance, CBS Canterbury and Southern Cross Building Society, says it has NZ$967 million worth of retail and consumer loans, NZ$470 million worth of rural loans - with this bolstered by last year's acquisition of specialist rural lender PGG Wrightson Finance - and NZ$519 million worth of business loans. Heartland also says it had NZ$111 million of "non-core" net property loans as of December 31 giving it just over NZ$2 billion worth of net loans in total.

The Heartland merger plans envisaged a sharemarket listed "Heartland Bank" that would aim to double its NZ$2.2 billion asset base within five years through growing lending to families, small business and the rural sector. See more in this Double Shot interview with Heartland CEO Jeff Greenslade.

Long & winding road, with uncertain outcome, to obtaining bank status

The investor update provides no new information on Heartland's key ambition of obtaining bank registration from the Reserve Bank. Last month Heartland reiterated that it has engaged with the central bank on its application but said the making of any formal application was subject to Heartland being satisfied it has met all Reserve Bank requirements.

"The process through to formal application is of indeterminate length. As discussions with the Reserve Bank are confidential, Heartland is not able to comment further as to timing or criteria," Heartland said last month.

In the independent report on the merits of the ultimately successful merger to create Heartland, authors Cameron Partners and Northington Partners suggested it could take up to two years to obtain banking registration, although there was a risk it could take even longer. The two firms did, however, suggest it was likely Heartland would ultimately be granted bank registration.

The Reserve Bank itself says the length of time it takes to process bank licence applications will vary, and the time taken with any specific application will depend on the complexity of the application. It also notes that unsuccessful applicants can reapply. See more on the process of applying to become a bank here.

Cameron Partners and Northington Partners also said Heartland could see its cost of funds reduced by up to 150 basis points if it achieves an investment grade credit rating and bank licence. It has since obtained a BBB- credit rating from Standard & Poor's, the credit rating agency's lowest investment grade rating, with a stable outlook on the rating.

Heartland had deposits covered by the extended Crown retail deposit guarantee scheme up until December 31. A chart in the presentation suggests reinvestment rates have increased to about 80% this year from about 60% late last year, with Heartland disclosing NZ$1.3 billion worth of term deposits as of December 31 with liquidity as a percentage of its retail book up to 29% in February from about 25% last November. On its website Heartland is currently promoting 90 day term deposits at 4.5% and 5.25% for 12 months.

The group says it had NZ$480 million of liquidity as of December 31, comprised of NZ$120 million of cash, NZ$150 million of committeed, but undrawn bank loans with BNZ and Westpac (NZ$50 million has been drawn), and NZ$210 million of unutlised securitisation facilities. Securitising car loans and residential mortgages, it also has NZ$265 million of drawn securitisation facilities through Westpac.

As of December 31, Heartland said it had total assets of NZ$2.4 billion and total liabilities of NZ$2 billion. See Heartland's full half-year financial statements here.

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