You spoke too early snapiti. Should have waited for Snoopy's welcome comments first !
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Let us try.
One of the ways that HNZ divides it's financial assets is into two broad portfolios:
The Judgement Portfolio: where loans are assessed into one of 9 different risk ratings: 1 having the least risk of the loan going bad and 9 the most. Provision for risk impairment for each of 1-8 is based on a % of loan value (based on years of experience), each loan in 9 is individually assessed (Impaired loans from this portfolio are called Collective Impaired Assets);
The Behavioural Portfolio: where each loan is risk assessed individually (Impaired loans from this portfolio are called Individually Impaired Assets).
Reading Note 37(e) of the accounts shows that the Total Provision for Impaired Assets as jumped from $27M4 in 2012 to $50M5 in 2013, net +$23M1, and that this is almost entirely from Property divided between an increase of $9M3 in the Judgement Portfolio (Collective Impaired Assets) and $14M3 (Individually Impaired Assets).
Now remember how in the Judgement Portfolio as the category number gets higher the perceived risk % rises and the greater the impairment provision, so although the gross amount of loans across 6-9 is essentially unchanged the increase in the 2 highest risks categories results in an higher overall impairment provision.
Best Wishes
Paper Tiger
Disc: Will not be at the AGM.
Time to look at the Liquidity Buffer ratio for 2013
HNZ has total borrowings of $2,134,285,000, made up principally of term deposits lodged with Heartland (see Statement of Financial Position).
Note 26 is meant to give a breakdown of these borrowings. Once again there is no breakdown given of current and longer-term borrowings
The information given on the securitized facilities is as follows:
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Bank borrowings and deposits (which include NZDX bonds) rank equally and are unsecured. The group has securitised bank facilities totalling $500m, all in relation to the trusts. Heartland ABCP Trust 1 (ABCP Trust) has a maturing facility of $400m maturing 5th February 2014, and CBS Warehouse A Trust (CBS Trust) has a securitisation facility of $100m maturing on 22nd January 2014 These facilities are drawn by $259m (2012: $264m).
Investors in ABCP Trust rank equally with each other and are secured over securitized assets of that trust. Investors in CBS Trust rank equally with each other and are secured over securitized assets of that trust
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Once again all Securtised asset activity relates to a time-frame no more than one year out in the future, in this case just 6 months. Not much time then until everything is up for renegotiation.
The amount of securitized holdings has decreased a little (by $5m), but in context presents a fairly steady as she goes picture..
The Group's bank facilities are down from $650.0 million to $500.0 million, yet these now seem to be completely undrawn with last years $50m loan paid back. That all adds up to a net borrowing capacity down by $100m year on year.
This money has been on loaned to customers who want loans. These customers owe HNZ 'Finance Receivables' of $2,010,376,000. Again there is no breakdown as to what loans are current and longer term (note 18).
Given:
1/ I understand 'liquidity' to be a balance between the maturity profile of current debenture holders VERSES
2/the loan periods associated with those on lent funds are unknown,
then my analysis comes to a full stop (again).
The only thing I do note is that the amount borrowed as debentures and deposits from customers has gone up (by $194.796m) and the amount lent to customers has gone down (by $0.679m). That means Heartland is a shrinking company, not a growing company as some here believe. Of course shrinking is not such a bad thing if it is the bad loans that are being shrunk! Bank facilities have gone down by $100m over the same annual comparative period. So Heartland having shifted tactics and are using more funds borrowed from customers to make up the alternative bank funding shortfall.
Some of the build up in funds may be due to the reserve bank conditions imposed when Heartland became a bank of course. Anyone know for sure?
SNOOPY
Once again there is no mention of Tier 1 or Tier 2 in the Heartland FY2012 report.
The 'best case' scenario is that all loans are Tier 1. $2,097.553m of loans are outstanding. 20% of that figure is:
0.2 x $2,097.553m = $419.5m
Heartland has total equity of $370.5m which is well below the 20% of loan target no matter what the tier classification of the loans.
Result: FAIL TEST
Heartland have increased their lending and reduced their capital by paying out dividends, hence the poor result on this test. Last year I started a barrage of derision by suggesting a capital raising was looking likely when Heartland failed this same test. Over that FY2013 year Heartland obtained their banking licence (good, although they don't have the same freedom as other banks as regards capital ratios), decided to lend more against tier 2 assets (bad from this statistic's point of view, which is not to say tier 2 loans aren't profitable). Furthermore during the year the so called Basel 3 requirements, designed to shore up the stability of banks and requiring banks to carry more capital have been implemented (bad for this statistic).
I don't wish to speculate again on the overall likelihood of a cash issue to shore up HNZ in FY2014. All I will say is that given what has happened over FY2013, and looking at the trend in this statistic, such a cash issue to shareholders or a third party placement of HNZ shares is looking much more likely now.
SNOOPY
Updating this number for the full year
Equity Ratio = (Total Equity)/(Total Assets)
Using numbers from the Heartland FY2013
= $370.542m/$2504.627m = 14.6%
This is a significant deterioration on the FY2012 position. Not surprising as borrowings from debenture customers have increased, which results in a larger total asset position and dividend payments have weakened the balance sheet by shrinking equity. Unfortunately I believe that if HNZ is going to grow as they proclaim, they simply can't do it by shrinking their share capital base.
SNOOPY