Yes -that as well.
I must admit I have nearly sold all my HGH over the past 5 months .
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If a finance company doesn’t have some bad loans it’s not doing a very good job
These are very difficult times and lots of companies are going to fail.
If they have a culture that allows loans without adequate security it is not doing a very good job.
Finance companies fail in such circumstances.
At the very least it could be years before dividends resume.
I am likely to sell my remaining shares as I feel increasingly uncomfortable.
Pretty obvious some major provisioning is going to be required in regard to Covid 19 as per what Australian banks have done and in percentage of loan book terms probably a fair bit higher because of the nature of a significant part of HGH's lending. I am not sure one way or the other whether that places an obligation upon HGH to update guidance under the continuous disclosure regime of the NZX ? I half expect an update some time this month but who knows...
As fish has astutely observed the dividend outlook is very uncertain. When one of the major supporters of this stock for many many years, (Percy) has sold out, (although we all make mistakes and nobody has a perfect track record, myself included), people should probably sit up and take note.
With the financial year ended 30th June just wound up, I am trying to get more of a handle on Heartland's upcoming 'Covid-19 loan book losses'. I said previously that the ECL (Expected Credit Loss) method is a more conservative way of looking at the bad debt picture. But I am not sure if this is really true.
On my wider reading on this subject (actually just studying the Westpac FY2019 Annual Report, and HY2020 Interim Report) I note that all of the new business signed up during the year and the end of the line business that is finally written off are two classes of loans that are excluded excluded from the ECL analysis. This isn't so surprising when you think about it. A new loan that is not on the ECL system at the start of the year cannot be re-rated for credit quality if it has never been rated in the first place. Such must be the case with all 'new' loans. Likewise once a loan - or part thereof - is finally written off, it drops out of the bottom of the credit rating system. You can't re-rate a loan that has finally been determined to be unrecoverable!
Having said that, when I go to the Heartland interim report Note 7 (p16 HY2020 i.e. period ended 31-12-2019) and look at the Non-securitised loans') both the 'new and increased provisions (net of collective provision releases)' are combined in a single ECL analysis. That seems to immediately make a lie of my claim that 'New Loans' are not part of the ECL. But I tend to think my logic is right. That means, whether combined with existing loans or not, new loans cannot be re-rated in the period in which they are instigated.
There is another bit of the Heartland presentation on that page that strikes me as odd. The impairment allowance is reduced by adding back the 'Recovery of amounts previously written off'. That seems to make a liar of me again, as I have just stated that what is 'written off' under ECL cannot be brought back into the system. Yet two lines down that same figure is added back in (as though the recovery didn't happen) when it comes to calculating the impairment allowance. Weird to my eyes.
The interesting thing about the three finance companies with which I am most familiar, (Heartland, Turners and Westpac) is that all of them had an increased 'bad loan provision' on adopting the new ECL debt rating system. But I am wondering if that was a conservative provision realignment, due to the lack of familiarity with how the new system will operate over time? I did note that in the case of the Westpac HY2020 report, hidden in all the Covid-19 and other new provisions, the 'Business Activity During Period' was written back up in value (meaning the bad debt provision was decreased as a result) under the ECL method.
I am quite encouraged by comments coming out of Turners after the lockdown period. They reported their finance division remained profitable as people stayed home, didn't spend their money on frivolous things and paid down their loans. I am hopeful that many of the Heartland 'motor vehicle loans' got similar treatment. But whether this will continue into FY2021, now that we NZers are 'unlocked' and possibly about to lose our jobs as the wage subsidy ends is another matter.
SNOOPY