Heartland Bank warns dairy farm values could fall 40% from peak
Exposure to dairy farmers makes up 8% of its total lending book and 17% of its net receivables.
Heartland Bank [NZX: HBL], the Auckland-based lender, has told investors at a presentation it is monitoring the dairy sector "with close attention" and warned farm values could fall 40% from peak to trough if the downturn continues or worsens beyond current expectations.
Exposure to dairy farmers makes up 8% of its total lending book and 17% of its net receivables, which is the total money owed to the bank by customers minus amounts the bank accepts will never be repaid and has written off.
The presentation was delivered by chief executive Jeff Greenslade, head of banking Chris Flood and chief financial officer Simon Owen and has been published to the stock market operator, NZX.
The trio say that, in the bank's opinion, the majority of dairy farms could convert to sheep or beef farms if dairy prices stay low or get worse such that the viability of the industry is threatened. They say dairy farm values would effectively be underwritten by the value of sheep and beef farms.
Heartland's average loan to value ratio for its dairy loans is 59% and the bank says profitability would reduce if such a switch occurred. The bank's leaders insist it would remain profitable with no impact on capital if such a scenario came to pass.
It has also indicated it will shift its marketing and advertising spend from traditional channels like TV, radio, and the press, to lower-cost, targeted digital channels. Heartland took a stake in peer-to-peer lender Harmoney in September 2014. TV3 owner Mediaworks yesterday reported a soft advertising market for television in which advertising revenue fell by 1.7% or $10.6 million.
Shares in Heartland Bank were unchanged at $1.27 and have fallen 3.8% since the start of the year.
(BusinessDesk)
Edwin Mitson
Thu, 02 Jun 2016
Thu, 02 Jun 2016
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Heartland Bank warns dairy farm values could fall 40% from peak
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