Liquidity Buffer Ratio HY2016 (Part 1)
Quote:
Originally Posted by
Snoopy
Time to update the Liquidity Buffer ratio, the balance between monies borrowed and monies lent and matching up those maturity dates using a one year time horizon. The equation we are looking to satisfy is:
(Total Current Money to Draw On)/(Net Current Loans Outstanding) > 10%
FY2015 Loan Maturity (Financial Receivables) |
Expected |
Contracted |
C/E |
On Demand |
$37.012m |
$37.012m |
100% |
0-6 months |
$503.452m |
$664.557m |
132% |
6-12 months |
$341.392m |
$450.638m |
132% |
Quote:
My table of expected depositor behaviour for FY2015 follows:
FY2015 Deposit Maturity (Financial Liabilities) |
Expected |
Contracted |
E/C |
On Demand |
$22.450m |
$748.332m |
3.01% |
0-6 months |
$395.102m |
$1213.450m |
32.4% |
6-12 months |
$249.762m |
$686.159m |
36.4% |
This is the most imprtant calculation that most nvestors in finance companies never do. I have rechristened it the 'Meads Test'. The Meads Test is way to find out if dear old Colin says a profitable finance company is 'solid as', whether that company will run out of cash when it comes time to repay your debenture. "Liquidity Buffer Ratio" sounds a bit pompous, so I will adopt the term 'Meads Test' in the future, as I think most investors will relate to that term better.
We are looking at the balance between monies borrowed and monies lent and matching up those maturity dates using a one year time horizon. The equation we are looking to satisfy is:
(Total Current Money to Draw On)/(Net Current Loans Outstanding) > 10%
Heartland provides a nice projection of forward cashflows in note 14 of IRFY2016. But these are contacted cashflows. In practice depositors roll over their Heartland debentures. And when customers repay a Heartland loan, they often take out another loan. So what we as investors need to concentrate on is the expected behaviour of those that take out loans from Heartland and those that loan money to Heartland. Expected behaviour is not written in stone. But we can make an educated guess at this by looking at what happened in prior periods where both 'contracated' behaviour and 'expected' behaviour was tabulated. "Adjustment factors" in the table below:
HY2016 Loan Maturity (Financial Receivables) |
Contracted |
CE Factor |
Expected |
On Demand |
$31.879m |
1.000 |
$31.879m |
0-6 months |
$618,779m |
1.32 |
$816.778m |
6-12 months |
$277.017m |
1.32 |
$345.662m |
HY2016 Deposit Maturity (Financial Liabilities) |
Contracted |
CE Factor |
Expected |
On Demand |
$728.056m |
0.0301 |
$21.914m |
0-6 months |
$1,360.508m |
0.324 |
$440.805m |
6-12 months |
$498.705m |
0.364 |
$181.529m |
Now I have generated the expected cashflow data over the ensuing twelve months, I can proceeed to make some 'Meads Test' calculations.
SNOOPY
Liquidity Buffer Ratio HY2016 (Part 2)
Quote:
Originally Posted by
Snoopy
HNZ LENDINGS vs HNZ DEBENTURES
Customers owe HNZ 'Finance Receivables' of $2,862,070,000. There is no breakdown in note 11 of AR2015 as to what loans are current or longer terms. However, if we look at note 20, we can
derive the
expected maturity profile of total finance receivables due over the next twelve months.
|
On Demand |
0-6 Months |
6-12 Months |
Total |
Expected Receivables Due |
$37.012m |
+ $877.215m |
+ $594.842m |
= $1,509.069m |
less Expected Deposits for Repayment |
$22.450m |
+ $395.102m |
+ $249.762m |
= $667.314m |
equals Net Expected Cash Into Business |
$14.562m |
$482.112m |
$345.080m |
$841.755m {B} |
If more money is coming in from customer loans being repaid, than is having to be repaid to the debenture holders, then this is a good thing for liquidity. That now is the case here.
HNZ LENDINGS vs HNZ DEBENTURES
Customers owe HNZ 'Finance Receivables' (Lendings) of $2,928,601,000. If we look at note 14 of IFR2016, we can derive the expected maturity profile of total finance receivables due over the next twelve months. (This is what I did in part 1 of this calculation.) Adding the totals for the ensuing twelve months gives:
|
On Demand |
0-6 Months |
6-12 Months |
Total |
Expected Receivables Due |
$31.879m |
+ $816.788m |
+ $365.662m |
= $1,214.329m |
less Expected Deposits for Repayment |
$21.914m |
+ $440.821m |
+ $181.893m |
= $644.628m |
equals Net Expected Cash Into Business |
$9.965m |
$375.967m |
$183.769m |
$569.701m {B} |
If more money is expected coming in from customer loans being repaid, than is having to be repaid to the debenture holders, then this is a good thing for liquidity and debenture holders being repaid. That is the case here: good news for debenture holders.
It is important to note that this calculation is based on the loan book position at balance date. New loans taken out since balance date are not included. Neither are brand new customer debentures invested with Heartland since balance date. So these figures are not a forecast of what will happen. But they are are forecast of what will happen if all customer loan and deposit activity ceased at last balance date. This means the figures are best suited for comparing with previous periods, rather than being forecasts of what will happen in their own right.
SNOOPY
Liquidity Buffer Ratio HY2016 (Part 3)
Quote:
Originally Posted by
Snoopy
Time to update the Liquidity Buffer ratio for FY2015, the balance between monies borrowed and monies lent and matching up those maturity dates using a one year time horizon. The equation we are looking to satisfy is:
(Total Current Money to Draw On)/(Expected Current Net Loan Maturity Outstanding) > 10%
On the numerator of the equation, we have borrowings.
HNZ BORROWINGS
1/ Term deposits lodged with Heartland. |
$2,097.458m |
2/ Bank Borrowings |
$465.779m |
3/ Securitized Borrowings total |
$258.630m |
4/ Subordinated Bonds |
$3.378m |
Total Borrowings of (see note 13) |
$2,825.245m |
Note 13 does not contain a clear breakdown of current and longer-term borrowing amounts and their maturity dates.
Banking facilities are provided by CBA Australia but for both Australia and New Zealand. These facilities are, I believe, in relation to the recently acquired reverse mortgage portfolio. These banking facilities are secured over the homes on which the reverse mortgages have been taken out. These loans have a maturity date of 30th September 2019. That means they are classed as ‘long term’ for accounting purposes. Heartland can’t rely on CBA Australia as a source of short-term funds.
The information given in note 13 on the securitized borrowing facilities is as follows:
-------
|
Total FY2015 |
Total FY2014 |
Facility Maturity Date FY2015 |
Securitized bank facilities total all in relation to the Heartland ABCP Trust 1 |
$350.000m |
$400.000m |
3rd February 2016 (*) |
less Current level of drawings against this facility |
$258.630m |
$228.623m |
equals Borrowing Headroom |
$91.370m {A} |
$171.377m |
(*) I do not expect any problem in rolling this facility over for another year.
--------
Expected Current Net loan Maturity Outstanding $841.755m {B}
If more money is coming in from customer loans being repaid, than is having to be repaid to the debenture holders, then this is a good thing for liquidity. That now is the case here.
Summing up:
(Total Current Money to Draw On)/(Net Current Loans Outstanding)
= {A} / {B}
= $91.370m / $841.755m
= 10.8% > 10%
=> Pass Short term liquidity test (reversing the result of my most likely incorrect first iteration)
|
FY2015 |
FY2014 |
Amount lent to Customers (Receivables) |
$2,862.070m (+9.7%) |
$2,607.393m |
Total Borrowings |
$2,825.245m (+11.9%) |
$2,524.460m |
Amount borrowed from Customers (Debentures and Deposits) |
$2,097.458m (+20.8%) |
$1,736.751m |
Securitized borrowing facilities have gone down by $50m ($400m to $350m) over the same annual comparative period. So Heartland have upped their current period risk profile by having a smaller declared available loan buffer to cover any mismatch between maturing borrowings and maturing receivables.
(Total Current Money to Draw On)/(Net Current Loans Outstanding) > 10%
In the numerator of the equation, we have borrowings.
HNZ BORROWINGS
1/ Term deposits lodged with Heartland. |
$2,174.553m |
2/ Bank Borrowings |
$377.605m |
3/ Securitized Borrowings total |
$258.819m |
4/ Subordinated Bonds |
$3.381m |
Total Borrowings of (see note 7, IRFY2016) |
$2,814.358m |
Note 7 does not contain a clear breakdown of current and longer-term borrowing amounts and their maturity dates.
Banking facilities are provided by CBA Australia but for both Australia and New Zealand. These facilities are in relation to the reverse mortgage portfolio. These banking facilities are secured over the homes on which the reverse mortgages have been taken out. These loans have a maturity date of 30th September 2019. That means they are classed as ‘long term’ for accounting purposes. Additional borrowing capacity is available up until 30th June 2017, but only if certain scheduled repayments are met by the Heartland group. It follows that Heartland can’t rely on CBA Australia as a source of short-term funds.
The information given in note 7 on the securitized borrowing facilities is as follows:
-------
|
Total HY2016 |
Total FY2015 |
Facility Maturity Date HY2015 |
Securitized bank facilities total all in relation to the Heartland ABCP Trust 1 |
$350.000m |
$350.000m |
3rd August 2016 (*) |
less Current level of drawings against this facility |
$258.819m |
$258.630m |
equals Borrowing Headroom |
$91.181m {A} |
$91.370m |
(*) I do not expect any problem in rolling this facility over for another year.
-------
Summing up:
(Total Current Money to Draw On)/(Expected Current Net Loan Maturity Outstanding)
= {A}/{B (from post Liquidity Buffer Ratio HY2016 (Part 2) }
= $91.4m / $569.701m
= 16.0% > 10%
=> Pass Short term liquidity test
|
HY2016 |
FY2015 |
Amount lent to Customers (Receivables) |
$2,928.601m (+2.3%) |
$2,862.070m |
Total Borrowings |
$2,814.338m (-0.4%) |
$2,825.245m |
Amount borrowed from Customers (Debentures and Deposits) |
$2,174.533m (+3.7%) |
$2,097.458m |
Securitized borrowing facilities are nearly constant over the six month comparative period. External Bank borrowings have reduced by $88.174m. Heartland have reduced their current period risk profile by:
1/ Having a potentially much smaller mismatch between borrowings and receivables.
2/ Sourcing more borrowed funds from Heartland bank customers, replacing borrowings from third party external banks.
SNOOPY
Left speechless by the enormity of my memory lapse
Quote:
Originally Posted by
Paper Tiger
...Last figures I can recall from HBL was sixty something percent, but not going to bother with finding the precise figure or when that was....
Was looking for something else when I spotted this from the commentary accompanying the last half year results:
Quote:
Given continued market interest in the dairy sector in New Zealand, Heartland advises that its direct exposure to dairy farmers is 8% of its total lending book as at 31 December 2015. The average loan to value ratio (LVR) for Heartland’s dairy exposures is 59%. However, it is important to note that LVRs are only one of the indicators of loan quality. Heartland remains cautious of market conditions and continues to monitor the dairy sector with close attention. Dairy customers are being supported through this challenging period.
So even I am wrong occasionally :scared:.
Best Wishes
Paper Tiger