Industry Group Risk
From AR2017 note 18c, the greatest 'business group' risk in dollar terms is agriculture, with $757.004m worth of assets. This represents an increase of $129.334m over the previous year.
$757.004m/ $3,931,239m = 19% of all loans
Regional Risk
From AR2017 note 18b, the greatest regional area of credit risk in dollar terms is 'Rest of the North Island' , with $1,037.873m worth of assets. This represents:
$1,037.873m/ $3,939.231m = 26% of all loans
The 'Rest of North Island' loans (which excludes Auckland and Wellington) have risen 18% in numerical terms over the year, outstripping the growth of the previous largest region Auckland which grew by 13% in gross loan amounts (Auckland still covers 24.0% of all loans) . Given 'Agriculture' loans have grown by 21% over the year in dollar terms, this 'growth' could reflect the compounding of agricultural interest charges into existing loans. According to Heartland, dairy represent 8% of Heartland's total loan book (but still under the 10% to one customer group earnings cap that I use as a volatility risk indicator).
0.08 x $3,931.239m = $314m
At an interest rate of 8%, assuming no interest was actually paid (i.e it was all capitalised), this would increase the value of the Heartland Agricultural loan book by:
$314m x 0.08 = $25.1m
Since the actual agricultural loan balance increased by $72.0m, we can assume that more net new agricultural loans were taken out, rather than just rolling over the dairy loan book. This is logical when by 30th June 2017, it was becoming clear the dairy crisis was past its worst.
This is very much a contrast to traditional market leader ANZ.NZ who kept their total rural loan book static over the similar period ($NZ19.205m @ 30th September 2017 vs $NZ19.226m @ 30th September 2016)
Looked at just in agricultural terms, you could say that Heartland are potentially compounding their own problems for the future. Or is it just a case a putting more emphasis on their rural roots? Yet because the loan book in total has grown, reducing Heartland's relative reliance on Auckland is probably a positive.
The multi-year picture is shown below:
|
2012 |
2013 |
2014 |
2015 |
2016 |
2017 |
Largest Regional Market |
Auckland (30%) |
Auckland (30%) |
Auckland (25%) |
Auckland (26%) |
Rest of North Island (25%) |
Rest of North Island (26%) |
Largest Industry Group Market |
Agriculture (24%) |
Agriculture (21%) |
Agriculture (16%) |
Agriculture (17%) |
Agriculture (18%) |
Agriculture (19%) |