HGH - Heartland Group Holdings

[LaserEyeKiwi]

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.

[Snow Leopard]

But is it actually good for HGH to go bigly into the ordinary mortgage market?

Might as well sell up and buy ANZ.

[clearasmud]

But is it actually good for HGH to go bigly into the ordinary mortgage market?

Might as well sell up and buy ANZ.

Of course it's good.
The RB is bankrolling Heartland at 0.25%

[winner69]

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.

Jeez ...low target of 1% is 3 billion

Heartland receivables currently about 5 billion


That would indeed grow Heartland significantly

Just imagine 2% share ...double the size of Heartland

[Ferg]

Does anyone know if Heartland does not give preferential access to the brokers analysts?

[Cyclical]

Not sure what lending at this rate does to their net interest margin...

...paying them peanuts?

Of course it's good.
The RB is bankrolling Heartland at 0.25%

Exactly, clearasmud, they can still hit ~4% NIM with these rates, so go for gold I say. They are certainly making a big push with TV advertising, so I think they are pretty serious about grabbing a slice of the action.

I had a rant recently about a failed application online, but it transpired I made a mistake and checked something by accident...I was accepted in the end. But Kiwibank have me tied in for another 12 months, so I'm stuck there for now. One thing I found though, while on the face of it the Heartland rates look very competitive, they are a bit light on the cash incentive side of things compared with what I'm used to getting at Kiwibank at least (it's been 2 years though), so could be a case of horses for courses.

[winner69]

Didnt’t Snoopy once explain how lending at sub 2% can still give a NIM of 4% seeing intuitively it can’t be done.

[Cyclical]

Didnt’t Snoopy once explain how lending at sub 2% can still give a NIM of 4% seeing intuitively it can’t be done.

From last time...

I imagine you know how it works, w69, but if not, Snoopy explained it well a few months back. He'll be along shortly to put me straight, but something like 15% of Heartland's / depositor's money at whatever cost that may be, then the other 85% from the RBNZ printing machine at the OCR. All adds up to a ~4% NIM. The caveat here is that I may have all that wrong!

[Scrunch]

Didnt’t Snoopy once explain how lending at sub 2% can still give a NIM of 4% seeing intuitively it can’t be done.

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.

[Cyclical]

Didnt’t Snoopy once explain how lending at sub 2% can still give a NIM of 4% seeing intuitively it can’t be done.

I went digging back to October to find a couple of posts we had going on the subject...ok, maybe ~4% NIM was dreaming... The bold bit at the bottom is likely the key though.

Thanks Snoopy, I think I know where you are coming from, but personally I'm struggling to arrive at ~3.5%, unless you think OCR is going to -2% while Mortgage rates remain unchanged at 1.99%.

Here's my stab at it, all things being equal...please tell me where I'm going wrong:

At today’s rates:
Laon Amount	$100,000.00	1.99%	$1,990.00
Funding Sources:
Term Deposit	$15,000.00	1.05%	$157.50
RBNZ	$85,000.00	0.25%	$212.50
Total Loan Cost			$370.00
		NIM ($)	$1,620.00
		NIM (%)	1.62%

I think I can get that net interest margin up a bit Cyclical. A home loan has an RWA (Risk Weightings Adjustment) as low as 35%. That means the loan capital to back up a 35% RWA $100,000 mortgage is not $15,000, but only 0.35 x $15,000 = $5,250. So the bank's cost of 'income in' verses 'funding' on that loan now look like this:

At today’s rates:
Loan Amount	$100,000.00	1.99%	$1,990.00
Funding Sources:
Term Deposit	$5,250.00	1.05%	$55.13
RBNZ	$94,750.00	0.25%	$236.88
Total Loan Cost			$292.01
		NIM ($)	$1,697.99
		NIM (%)	1.70%

That is of course is just the interest charge bit of the NIM. Normally on top of that there are application fees, approval fees, variation fees etc. Looking on the Heartland website for 'mortgage fees', this particular 1.99% offer looks clean (although that 20% deposit requirement might knock out some applicants). However, I think the key point here is that historical Heartland's 4% net interest margin is across the whole loan book. In some loan categories, the NIM would be less than 4%. Furthermore the 'net interest margin' is only one input factor into the 'net profit margin'. It might be worthwhile settling for a lower NIM if it meant less follow up was required to manage payments due, which implies a positive effect on the 'net profit margin'.

SNOOPY