'Stressed Loan' vs 'Impaired Asset Expense' Trend: FY2015: UDC vs Heartland
Quote:
Originally Posted by
Snoopy
UDC: For FY2015:
Impaired Loans = $31.529m, Vulnerable Loans $1,018.134m
=> Impaired Loans as a percentage of Vulnerable Loans: 3.1%
I am trying to put the information below into a format so that it can be compared with Heartland Bank (my post 7700 on the Heartland thread) over the same period.
Heartland |
Date |
'Stressed' Loans on the books (X) |
Net Financial Receivables (Impairments deducted) (Y) |
(X)/(Y) |
Write Offs (W) |
Gross Financial Receivables (Z) |
(W)/(Z) |
EOHY2012 |
$87.728m |
$2,075.211m |
4.23% |
$12.138m+$1.685m |
$2,104.591m |
0.66% |
EOFY2012 |
$90.489m |
$2,078.276m |
4.35% |
$14.636m+$3.180m |
$2,105.702m |
0.85% |
EOFY2013 |
$48.975m |
$2,010.393m |
2.43% |
$6.679m+$1.961m |
$2,060.867m |
0.42% |
EOFY2014 |
$41.354m |
$2,607.393m |
1.59% |
$35.258m+$3.260m |
$2,631.754m |
1.46% |
EOFY2015 |
$32.824m |
$2,862.070m |
1.15% |
$1.555m+$1.910m |
$2,893.704m |
0.12% |
Unfortunately there are little differences in reporting standards that make this difficult.
For example, Heartland have a class of loans called 'Judgement Loans'. They pass annual judgement on these loans by rating them on a scale of 1 to 9 plus 'default'.
There is a second broad category called 'Behavioural Loans' which are separately rated, not using a scale.
UDC appear to rate all of their loans on a scale of 1 to 8 plus default (UDC prospectus December 2015, note 11d). I have previously defined UDC 'Vulnerable Loans' as classes 6,7 and 8. But category 6 is very large. So I am now going to change my mind and talk about 'Stressed Loans' which are calculated by:
Take loan total from categories 7 and 8
add 'Default' loans
less Provision for Credit Impairment.
I have redefined the 'Total Financial Assets' as listed in note 11d to be 'Net Financial Receivables'.
UDC |
Date |
'Stressed' Loans on the books (X) |
Net Financial Receivables (Impairments deducted) (Y) |
(X)/(Y) |
Impaired Asset Expense (W) |
Gross Financial Receivables (Z) |
(W)/(Z) |
EOFY2011 |
$126.218m |
$2,007.012m |
6.29% |
$15.103m |
$2,049.504m |
0.74% |
EOFY2012 |
$96.670m |
$2,102.299m |
4.60% |
$10.164m |
$2,141.780m |
0.47% |
EOFY2013 |
$86.877m |
$2,161.193m |
4.02% |
$12.399m |
$2,198.653m |
0.56% |
EOFY2014 |
$95.364m |
$2,344.131m |
4.07% |
$18.633m |
$2,375.936m |
0.78% |
EOFY2015 |
$82.267m |
$2,429.695m |
3.39% |
$12.162m |
$2,461.224m |
0.49% |
There are a couple of outlier points to note. The EOFY2011 X/Y is quite high. Over FY2014, the impairment expense for that year is larger than normal. But generally this picture is much steadier than the equivalent figures for Heartland. I realise comparing just two companies is no way to draw conclusions about one or the other verses their peers. But unfortunately most of those peers got wiped out in the GFC :-(
OK back to this comparison. The 'stressed loans' at UDC are typically three times the 'stressed loans' at Heartland when compared on a normalised basis. Furthermore the actual annual impaired asset expense at UDC is roughly twice that at Heartland. OK there are differences between the two companies. But not differences that would suggest such a wide divergence in comparative statistics. There is another key difference though!
Heartland is a listed company. But UDC is not listed. This means there are no UDC performance shares to vest for UDC managers. No incentive to massage the UDC loan books. The UDC accounts tell a consistent story in a way the Heartland accounts do not. IMO the UDC are consistent in presenting a picture of 'real' profits in the way the Heartland accounts may not , if Heartland have deliberately underestimated their 'Stressed' debts.
SNOOPY