BC1/ Tier 1 and Tier 2 Lending Ratios FY2018
Quote:
Originally Posted by
Snoopy
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% |
This is an assessment of Heartland's total liabilities/borrowings (including the accumulated funds looked after for Mum and Dad's known as term deposits) in relation to Heartland's own underlying assets.
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 |
$664.160m |
, PLUS |
Tier 2 capital as apportioned (NZD1 = AUD0.9138) |
$15.758m |
EQUALS |
Total Tier Capital |
$679.918m |
Total Heartland liabilities at balance date were $3,831.766m
So: Equity / Total Liabilities
= $679.918m / $3,831.766m = 17.7% > 17%
Result: PASS TEST
I have been a little generous compared to what the reserve bank might do, in including 'intangible assets' as 'underlying equity'. The Reserve bank effectively punishes a financial institution for spending on having up to date computer software (software is an intangible asset). Yet 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 EOFY2018, than at the end of the previous three 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 former Reserve Bank 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 |
FY2018 |
Target |
Total Tier Capital/ Loan Book |
19.3% |
17.7% |
17.6% |
16.6% |
16.4% |
16.9% |
17.7% |
>17% |
SNOOPY