Yes dairy is weak, I think everyone acknolwedges this... what I do think is great, is Heartland's many other growth opportunities, through niche markets, such as reverse mortgages, will be interesting to get an update on how things are going
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Won't worry HBL directors, their rural lending team will presently be hard at work refinancing most of their overdue dairy loans (except for a few really toxic ones which they might bite the bullet on), just before balance date and clean their balance sheet up and then they can tell shareholders how good they are and what a low percentage of their customers are in arrears and how good they are in supporting their clients through this...spread the losses over many, many, many years and nobody will notice eh, and senior management will still get most of their juicy bonus's, cunning plan ! Suppose they will talk about acquisitions again at the next annual meeting to gee-up shareholders yet again.
The real problem is management are usually rewarded with generous bonus's for meeting defined profit targets so they're incentivised to take a liberal view of which loans are totally toxic with no possibility of recovery, heavily in arrears with some possibility of recovery, (often some bankers refinance these sort of loans just prior to balance date to make them look better), doubtful with a moderate probability of recovery and simply overdue for reasons other than systemic issues like dairy being too low.
One of the issues you need to watch for is the real loan to value ratio's of the average loan to the dairy sector. By real I mean that the values used in the original loan applications will no longer be valid unless they've undertaken fresh valuations in the period between about March 2016 to June 2016 after the huge fall in dairy land, stock and machinery prices in February 2016. I think from a practical perspective its unlikely that a significant part of their dairy loan portfolio would have had fresh valuations unless the loan is actively under review. If HBL are using old valuations their stated loan to value ratio is highly debateable.
Investors need to look at how the other banks are faring with their loan provisioning and the substantial additional provisioning they're applying and ask themselves is it really realistic for HBL to be trying to claim their situation is so much better. Questions over asset quality are by no means unique to HBL, in fact we're seeing a very wide range of banking stocks around the world have their share prices come under serious pressure.
The question people might like to ask themselves is why would it be any different for HBL ? Yes they have a better capital ratio than many other banks and as such are in a better position to withstand write-off's but that doesn't change the position in regard to questions over asset quality and while that remains its hard to see the SP gaining momentum. With balance date just around the corner and work by the accountants and auditors soon to get underway this is a good time of year for shareholders to be pondering whether HBL will be forced to take a more realistic look at their dairy loan provisioning in light of the extended drop and especially in the context that there is no discernable light at the end of the tunnel. Around 8% of the bank's loan portfolio.
As always folks, DYOR and this post is not intended to be a recommendation. Just food for thought.
Disc: I don't hold and am not looking to buy on any decline.
You are spot on.HBL have very low exposure to dairying.[Under 8%;,other banks over 10%+].
You can rest assured there are no incompetent's working at HBL.
Of all Australasian Banks, Heartland Bank's directors and management have the largest % ownership.
As per everything in life,you look after your own very carefully,and avoid incompetent's.