that is brilliant!!
Printable View
Today I want to look at the ability of Heartland to match their cash ingoings and cash outgoings over specified time periods. This goes back to what happened during the financial crisis where some finance companies declared a moritorium on payments to debenture holders because although solvent on paper, they ran out of cash to make the payments. My previous attempts at doing this were not very successful due to lack of disclosire in the annual and half year reports. Since Heartland has become a bank more information has come into the public domain . This time I will look at the end of period positional statement supplied to the reserve bank:
http://www.heartland.co.nz/uploadGal...nt%20Dec13.pdf
to see if I can do a better job.
Heartland looks at this issue under note 20
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20 Interest rate risk
Interest rate risk is the risk that the value of assets or liabilities will change because of changes in interest rates or that market interest rates may change and thus after the margin between interest earning assets and interest earning liabilities. Interest rate risk for the banking group refers to the risk of loss due to holding assets and liabilities that may mature or re-price in different periods. Interest rate risk is mitigated by managment's frequent monitoring of interest rate repricing profiles of borrowings and finance receivables and where appropriate the use of derivative instruments"
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SNOOPY
I am listing a comparison of the maturing assets and liabilities over different time periods for HY2014, and a comparison of the same figures six months earlier at FY2013. In the short term ( 0-3 months ) it is critical that financial assets exceed financial liabilities. Looking further out this is not so important because the bank has time to manipulate the figures so they do match by due date. Nevertheless I think the comparative position between time periods is worth noting as this will provide a measure of how much work the bank will have to do.
HY2014 (as at 31st December 2013) Time Period Financial Assets less Financial Liabilities add Derivative Adjustment equals Remainder (0-3 months) $1,545.827m $1,219.768m $196.815m $522.874m (3-6 months) $127.456m $331.145m -$20.335m -$224.024m (6-12 months) $181.345m $402.912m -$38.850m -$260.417m (1-2 years) $290.823m $69,530m -$86.325m $144.168m (2+ years) $199.587m $54.113m $-71.305m $74.169m
FY2013 (as at 30th June 2013) Time Period Financial Assets less Financial Liabilities add Derivative Adjustment equals Remainder (0-3 months) $744.290m $1,011.916m 0 -$267.626m (3-6 months) $4.250m $339.250m 0 -$335.0m (6-12 months) $21.332m $373.581m 0 -$352.249m (1-2 years) $7.059m $111.129m 0 -$104.070m (2+ years) $3.032m $52.743m 0 -$49.711m
The 'Finance Assets' above are the various loans that Heartland have, like seasonal finance used by farmers for instance, that Heartland plan to get back with interest. The 'Finance Liabilities' amongst other things are the money that fixed interest investors loan to Heartland to try and get a bit more return than is available in the mainstream banks.
For a fixed interest investor, they want to see a positive number for the 'remainder' (highlighted in bold) , because that means Heartland bank has enough money to pay them should they choose to redeem their investment. From this perspective Heartland are in a much better position now than six months ago.
But conversely, as a shareholder, you could look at the same data and say:
"Not good! Heartland does not have enough loans out there in the market to be making best use of the funds available to them."
So what to make of this overall? I am not sure. Any opinions?
SNOOPY
Heartlands Interest Rate Risk:
Net & Accumulative positions at 31-Dec-13
0-3 Months: $523M $523M
3-6 Months: (224M) $299M
6-12 Months: ($260M) $38M
1-2 Years: $144M $182M
2+ Years: $74M $257M
and for comparison Net & Accumulative positions at 31-Dec-12
0-3 Months: $351M $351M
3-6 Months: (168M) $183M
6-12 Months: ($288M) ($105M)
1-2 Years: $261M $156M
2+ Years: $101M $257M
What does this mean?
The periods represent the time frame in which the bank can change the interest rate it receives on loans and pays on deposits and the first column the amount that loans exceeds deposits for that time frame.
So in a hypothetical situation where they cut the interest rate on 31-Dec-12 across the board by 1%pa then after three months the interest received on loans will have dropped by $300K per month (approx $351 * 1% / 12) more than the interest paid on deposits. (So this is a net reduction in revenue)
Obviously if the across board change was a rise of 1% then they would be a $300K per month (still approx) gain in revenue.
In the real world of course it is a lot more complicated than these simple scenarios.
Best Wishes
Paper Tiger
Really this is totally beyond my understanding,but what is interesting is that two obviously knowledgeable balance sheet analysts get two different perspectives.If that is the case and it is not that simple to come to a conclusion,how then would two different auditors view the information? Probably they work to the same rules I guess.
This is all taking into account though that you are both viewing the same numbers.