You can't get a NIM of 4% but you can get a good margin on the capital needed to support the lending. If you make a 1% margin on the RBNZ/other borrowing financed bit and 2% on the equity financed bit the return on equity is 11% (if equity finances 10% of the lending). The lower you can get the equity supporting the loans, the higher the return on equity.
You hit the nail on the head there, Scrunch, which just goes to show that we shouldn't put too much emphasis on NIM.
You hit the nail on the head there, Scrunch, which just goes to show that we shouldn't put too much emphasis on NIM.
And refining some of the numbers, the Non-property investor residential mortgage loan has a risk weighting of 0.35 if the loan is current, has a <80% LVR and is to a residential owner occupier (HGH conditions?). While HGH may ultimately need a 16% capital adequacy ratio, the 0.35 weighting means if the book had no arrears, you could theoretically have equity financing 5.6% of the loans and the remaining 94.4% financed by borrowing. >15x leverage helps the maths.
RBNZ's funding for lending scheme should be available for up to half of all new eligible lending. This would mean half the financing needed for the new 1.85% loans could be sourced from RBNZ at the cash rate (0.25%). This would create a margin of 1.6% (not 1%) on this part of the financing structure.
These changes would improve the return on equity to a theoretical 25%+. Unfortunately income tax will lower this, as will any bad debts, commissions paid to brokers, any large sign-on legal fees subsidies and non-automated back-end processes. Assuming all these other bits are well managed it looks like this <2% lending could be nicely profitable.
Just want to emphasise that Mortgages are a massive blue ocean for HGH now that it has entered.
The NZ mortgage market is now over $300 Billion in size, so having a target as low as 1% of that market would grow HGH significantly.
I am a bit more weary about this growing emphasis on the mortgage market, in direct competition with the big boys. We have done very well for many years with our fringe products where the big boys have pretty much left us alone, reverse mortgages being a prime example.
Yes of course the RBNZ is currently providing some very cheap lending but going into the mortgage market boots & all has to be a long term strategy that will last well beyond the cheap funds from the RBNZ.
I am a bit more weary about this growing emphasis on the mortgage market, in direct competition with the big boys. We have done very well for many years with our fringe products where the big boys have pretty much left us alone, reverse mortgages being a prime example.
Yes of course the RBNZ is currently providing some very cheap lending but going into the mortgage market boots & all has to be a long term strategy that will last well beyond the cheap funds from the RBNZ.
Perhaps it is not a long term strategy.?
When the cheap RBNZ funds are gone, so will be HGH from this sector.?
While there is currently a profitable "window of opportunity" in this sector HGH are taking advantage of it.
Perhaps it is not a long term strategy.?
When the cheap RBNZ funds are gone, so will be HGH from this sector.?
While there is currently a profitable "window of opportunity" in this sector HGH are taking advantage of it.
..............and highlighting / stressing their FINTECH credentials
Market needs reminding they not an ordinary finance company
“ At the top of every bubble, everyone is convinced it's not yet a bubble.”
Still can't believe that Jeff came out with a profit upgrade. First one in 5 years (probably many more years than that)
Here's a table showing Jeff's 'managing profit' efforts over the last few years. No surprises / we always do what we will say we will do etc etc
Jeff will say Heartland's NPAT for year will be $86.4m - they'll report $93.1m with the covid overlay being released but Jeff will stress that that's not real and say actualy underlying earnings were $86.4m
Just like last year Jeff talked about the $78.9m rather than the reported $72.0m
“ At the top of every bubble, everyone is convinced it's not yet a bubble.”
Can't argue with that. He does what he says he is going to do. What it shows is a deep understanding of the business and its drivers. Either that or some "creative bookkeeping" through provisions.... Thanks for sharing.
Originally Posted by Scrunch
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