Ask your self which other,if any, Australian or NZ bank could survive a fall in property values of 40%.?
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Ask your self which other,if any, Australian or NZ bank could survive a fall in property values of 40%.?
Another question to ask. When was the last time average real (inflation adjusted) real estate prices fell 40% over a period of a few years ?
During the GFC NO. During the tech wreck of 2000-2001 NO. 1987 sharemarket crisis NO. Great depression of 1929 to 1936 is probably the answer.
That's true. The key to maximising any bank's 'cash backing resources' means looking for 'loan business' which has an 'Average Risk Weighting' with a low a rating as possible. Why? Because a loan with a low percentage risk weighting will require less bank capital to back it up. And that means any bank capital so freed up can be used for other new loans, thus maximising the size of the bank's loan book.
So what are the three classes of loans that will provide the biggest 'bang for capital' (lowest average risk rating) (excluding regular mortgages which Heartland are leaving to the big banks)?
According to note 26 in the Financial Report for FY2017 these are.
1/ Non Property Investment Mortgage Loan ( <80% LVR): 35%
2/ Non Property Investment Mortgage Loan ( 90%> >80% LVR): 50%
3/ Reverse Residential Mortgages ( <60% LVR ): 50%
So the best way to maximise the 'bang for buck' of a residential reverse mortgage business is to incorporate it within the Heartland bank structure as it is right now! So why are Heartland looking to change their structure again?
Australian bank lenders are also subject to Basel 3 requirements, the very same requirements that the Reserve Bank of NZ is required to satisfy as a basis for the RBNZ rules. So how is having a new Heartland Australian based entity lending on Australian reverse mortgages going to help Heartland again?Quote:
So HBL's capital will support higher growth in HBL's RELs, and other Australian growth area, such as "open for" products, which should mean a higher EPS and ROE..
SNOOPY
You make a good point that reverse mortgages might be in demand for health reasons.
We have so many advances and an ageing population.There are already thousands of elderly who are not getting the drugs/surgery that will enable them to live a better quality of life for longer
I dont believe DHB/ministry of health give much priority to funding expensive drugs or surgery for the elderly so maybe more will need a small reverse mortgage for sudden unforseen health expenses
Exactly...………………………..
Its going to be interesting.
With more secure lending,ie fewer big loans,better quality motor vehicle lending,and huge growth in REL lending, it will be interesting to see what affect there will be on the overall equity ratio,eps,roe and dividends,and whether Heartland Group's cost of funding will remain compareable to the major banks. .
Going to be difficult to find any businesses to compare Heartland Group to.
Even Heartland Bank NZ will be a lot different to other banks ,because of their REL and motor vehicle,rural etc lending,compared to the major banks' focus on mortgage lending.