Heartland only has a tiny amount of Tier 2 capital. Yet weirdly, because of this and the way those NZ reserve bank covenants are written, it seems this has become the limiting factor as regards Heartland's Capital Adequacy going forwards.
The way I read this (and I could be wrong), Heartland must make sure their total Tier1 and Tier 2 ratio is in excess of 8+2.5=10.5. At the last balance date with declared results (30-06-2014) Heartland had a Total Tier 1&2 Ratio of 17. Total shareholders equity was $452.6m. If they only had:
$452.6m x (10.5/17) = $279.5m of equity.
that would have been (roughly) sufficent to cover the loan book at the time (with the benefit of retrospective application of today's new reserve bank sanctioned capital standards)
Then based on today's covenants, that leaves:
$452.6m - $279.5m = $173.1m of 'spare' capital that could be allocated to an expanded loan book. In practice no bank would 'go to the wire' in this kind of expansion. So lets say $150m of capital available for loan book growth.
The question is what kind of loan book could Heartland acquire with that? About $1.5billion in new loans perhaps? That's if they only paid book value for the new loans, of course.
SNOOPY