The 'Total Provision for Impaired Assets' is already regarded as lost, from a bank management perspective. This is not to say that everything accounted for in the impairment provision will be lost. For example TNR in their last half yearly result wrote back part of their impairment provision. But it does mean that Heartland are managing their business assuming, for now, that the 'Total Provision for Impaired Assets' is lost.
'Gross Financial Receivables' is a figure of receivables before the impairment provisions are deducted. I would argue that because Heartland are managing their receivables assuming the 'Total Provision for Impaired Assets' is already dead money, the most useful figure for comparisons is the 'Total Financial Recivables' (with impairments already deducted). Personally I find the phrase 'Total Financial Recivables' ambiguous. So I have chosen to call 'Total Financial Recivables' 'Net Financial Receivables' ('Net' implies something has been subtracted from a higher total). This is why I have used 'Net Financial Receivables' for my calculated comparisons.
A problem is bank balance dates provide a snapshot of what is happening. But a 'snapshot of impaired assets' is just that. Impaired assets are dynamic and changing. From an investment perspective I want to know what will happen in the future.
Generally loans do not go bad overnight. A loan is always good when it is first agreed to. Then something might happen that causes the bank to 'monitor' that loan. An inkling that the loan has become 'substandard' might lead to it being seen as 'doubtful'. Things become more serious when 'doubtful' turns to 'at risk of loss' and finally the worst loans actually 'default'.
The 'default' loans always make headlines. But from a bank managment perspective it is the 'doubtful' and 'at risk of loss' loans that IMO are the best indicators of the risk going forwards. If a loan is already in default there is very little bank management can do at that late stage! This is why I am much more interested in the 'stressed' loan balance' that is left on the books rather than the 'impairment' already off the books. 'Stressed loan' is not a definitive accounting term. But from a Heartland perspective I define a stressed loans as (see note 19 of AR2015):
(At least 90 days past Due)
plus (Individually Impaired)
plus (Restructured Assets)
less (Provision for Impairment)
Consequently I believe my previously published comparison chart is the best way to assess the 'stressed loan' situation.
Four years worth of data is not ideal. I prefer to work on data that at least covers a business cycle, and that means a minimum of five years. But four years worth of data, with Heartland in some semblence of the form it is in today, is all we have. So that is all we can work with. I don't think there is sufficient 'lack of data' to just ignore it and give up.Quote:
There is insufficient years of history to attempt to trending the data.
SNOOPY