BC1/ Tier 1 and Tier 2 Lending Ratios FY2017
Quote:
Originally Posted by
Snoopy
The promised capital note issue never happened. So once again this calculation is straightforward with all 'Tier 1 and Tier 2 capital' being shareholder equity.
Total Heartland Equity at balance date was $498.341m,
Total Heartland liabilities at balance date were $3,048.840m
So: Equity / Total Liabilities
= $498.341m / $3,048.840m = 16.3% < 17% (*)
Result: FAIL TEST
Note that I have changed my equity target for Heartland to the 17% equity (down from my 20% target) that Heartland had when Governor Wheeler originally approved Heartland as a bank. I had previously used 20% as the figure appropriate for a more marginal finance company without a strong history. Even so, Heartland has did not have the amount of equity on the books to support a loan book of the current size in my judgement. However the December 2016 equity raising has no doubt addressed this issue for now.
The historical picture of this ratio is tabulated below.
|
FY2012 |
FY2013 |
FY2014 |
FY2015 |
FY2016 |
Target |
Total Tier Capital/ Loan Book |
19.3% |
17.7% |
17.6% |
16.6% |
16.4% |
>17% |
In April 2017, Heartland had a subordinated capital note issue of $A20m. Approximately 72% of the face value of the Notes will be recognised as Tier 2 Capital by our banking regulators. So we must add the 'Tier 1 capital' (being shareholder equity) to 72% of the 'Tier 2 capital' to obtain the total recognised 'tier' capital for liquidity purposes
Total Heartland Equity at balance date was |
$569.595m |
, PLUS |
Tier 2 capital as apportioned |
$14.975m |
EQUALS |
Total Tier Capital |
$584.570m |
Total Heartland liabilities at balance date were $3,465.076m
So: Equity / Total Liabilities
= $584.570m / $3,465.076m = 16.9% < 17% (*)
Result: PASS TEST
I have been a little generous in 'passing' Heartland here, because I am not convinced that using 'only' 72% of the Tier 2 capital is justified (if 100% of Tier 2 capital was used the 17% pass figure would be achieved). I have also included 'intangible assets' as equity. This is because a financial institution is 'punished' for spending on having up to date computer software (software is an intangible asset), when I see up to date software as a really good idea in keeping track of troublesome loans. Nevertheless, whether you agree with my reasoning or not, no one can dispute that Heartland was in a better loan security position at EOFY2017, than at the end of the previous two financial years.
{Note that I have changed my equity target for Heartland to the 17% equity (down from my 20% target) that Heartland had when Governor Wheeler originally approved Heartland as a bank. I had previously used 20% as the figure appropriate for a more marginal finance company without a strong history.}
The historical picture of this ratio is tabulated below.
|
FY2012 |
FY2013 |
FY2014 |
FY2015 |
FY2016 |
FY2017 |
Target |
Total Tier Capital/ Loan Book |
19.3% |
17.7% |
17.6% |
16.6% |
16.4% |
16.9% |
>17% |
SNOOPY