Wannabe bank Heartland NZ says process of weaning itself off Crown guarantee is ahead of its plan

Wannabe bank Heartland NZ says process of weaning itself off Crown guarantee is ahead of its plan

By Gareth Vaughan

The CEO of Heartland New Zealand, created through the merger of Marac Finance, CBS Canterbury and Southern Cross Building Society, won't be drawn on whether the financial services provider will stop taking deposits covered by the extended Crown guarantee scheme before it expires on December 31, but says it's tracking ahead of its plan to wean itself off the guarantee.

Jeff Greenslade, Heartland NZ's CEO, also told interest.co.nz that the aim to apply to the Reserve Bank for banking registration during the second half of 2011 remained on track, although he wouldn't specify whether the application was likely to be made sooner of later in the half-year.

Heartland NZ said on Friday that as of June 30, it held NZ$1.6 billion worth of retail deposits. Its retail deposit reinvestment rate for June was 82%, Heartland NZ added, compared with a year to date average of 77%. New fund flows were currently tracking at over a million dollars a day. It also said it had cash, liquid assets and available funding lines (NZ$200 million in undrawn loans from BNZ and Westpac) of NZ$600 million.

Asked what percentage or value of Heartland NZ's deposits have maturity dates beyond December 31, Greenslade said he wasn't yet ready to disclose this.

"We have disclosed that in the past and we will disclose that in the not-too distant future," he added.

"We're just mid-way through a (fund raising) campaign at the moment so we'll wait for that campaign to finish and we'll be clarifying, or providing those details in due course. In terms of where we are tracking, we are tracking ahead of where we wanted to be in terms of our transition," said Greenslade.

And asked how much of the money being reinvested, or invested, with Heartland NZ was being invested beyond December 31, he said a "portion" of it was and this detail would be subject of a future announcement.

"We just want to wait till we've finished the current campaign, then we'll make a release and let people know how that is tracking. But it is tracking positively."

Heartland NZ's financial statements as of January 7 this year, showed of its total borrowings of NZ$1.84 billion, NZ$76.3 million was on demand, NZ$256.9 million was due to mature within six months, and NZ$320.9 million was due between six and 12 months. Heartland NZ has a BBB- investment grade credit rating from Standard & Poor's.

The Crown guarantee now effectively 'the Heartland guarantee'

Heartland NZ continues to offer both non-guaranteed and guaranteed deposits. It's currently promoting a 5.5% interest rate on six month term deposits and 6.25% on 12 month term deposits, with both running beyond December 31.

Heartland NZ and rural lender PGG Wrightson Finance, whose good loans Heartland NZ is proposing to buy, are the only two of the four companies covered by the extended Crown retail deposit guarantee scheme still offering guaranteed deposits. The Wairarapa Building Society stopped offering guaranteed deposits in January and Fisher & Paykel Finance stopped in late June.

Asked whether Heartland NZ might follow suit Greenslade said: "I can't comment on that at this stage, but certainly that is something that we do consider."

Although Heartland NZ continued to offer both non-guaranteed and guaranteed deposits it was "heavily emphasising" the non-guaranteed ones.

"And what we've made very clear to the market is that we believe that ultimately we don't need the Crown guarantee," Greenslade said.

Meanwhile, he said preparations for lodging a banking registration application with the Reserve Bank were continuing, which Heartland NZ recognised was the start - rather than finish - of the process of trying to become a bank. Heartland's independent report on its merger said it could take a year or two for a banking license to be approved. See more in our report from late last year.

Asked whether he could be more specific on whether the application was likely to be made earlier in the second half-year or later, Greenslade said no, and there wasn't any specific importance in terms of timing.

"It'll be when we're ready," Greenslade said.

"We're comfortable that we're on track. We feel we have a good idea of the things we need to cover. Obviously the PGG Wrightson Finance acquisition is a material aspect that we needed to include, hence the fact we will wait until we have final clarity on that until we make an application."

Greenslade told interest.co.nz last November that the banking registration application would only be made when Heartland NZ's management was confident of succeeding.

Big rise in rural exposure

The plans for the creation of Heartland NZ were to ultimately establish a Christchurch headquartered, 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. It has listed on the NZX and has now been included in the benchmark NZX50 index.

Greenslade said a successful completion of the PGG Wrightson Finance acquisition - it still requires approval from the Crown, PGG Wrightson Finance's security holders, ASB due to its risk sharing agreement with PGG Wrightson Finance and its trustee, New Zealand Permanent Trustees, would see the percentage of Heartland NZ's loan book exposed to the rural sector rise to about 23% from just 6-7% now.

It was a good time to be expanding rural exposure due to the deleveraging that had been going on and high commodity prices.

"What we want to be doing is heavily financing the inputs into the rural sector. IE financing things like livestock, dairy herds, farm implements and working capital, which is really what the sector needs at the moment," Greenslade said.

He believed there had been far too much lending against the real estate of farming as opposed to the inputs.

"We'll do some of that (real estate lending) but that's the second prize to us. The first prize is to give farmers what they really need in the here and now which is working and seasonal capital."

He didn't rule out further incremental acquisitions if attractive loan books came on the market.

"But in terms of anything substantial, I think that we are comfortable with where we have got to at the moment," said Greenslade.

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