Low interest rates spur lift in Heartland profit

Heartland Bank boosted annual profit 12% and will pay a bigger dividend, widening margins as low interest rates mean cheaper funding.

Net profit rose to $54.2 million, or 11c per share in the year to June, from $48.2 million, or 10c, a year earlier. That met the bank's guidance for profit of between $51-55 million.

Interest income rose 1.9% to $265.5 million while lending expanded 8.8% to $3.11 billion. Interest expenses fell 5.7% to $118.8 million as it scaled back more expensive bank borrowings for cheaper retail deposits.

"The increase in net operating income (NOI) was primarily attributable to the increase in receivables and to a reduction in the cost of funds," the bank says.

"Heartland expects underlying asset growth to continue for the 2017 financial year, with increased household, business and rural volumes projected."

Heartland has been on the hunt for new acquisitions to accelerate its expansion. It made an unsuccessful bid for Motor Trade Finance and was mooted as a potential bidder for Australia & New Zealand Banking Group's UDC Finance business.

The lender has been considering a capital return to shareholders, but says volatility in financial markets "creates greater opportunity for acquisitions."

The board declared a final dividend of 5c per share, payable on October 7 with a September 23 record date. That takes the annual payment to 8.5c, up from 7.5c a year earlier.

The shares rose 2.8% to $1.47, adding to the 8.3% gain so far this year. The stock is rated an average buy based on three analyst recommendations compiled by Reuters, with a median price target of $1.34.

Heartland expects 2017 profit to rise to between $57-60 million, excluding the impact of any capital management changes.

The bank's households division lifted net operating income 12% to $86.1 million as auto lending grew 9.5%, personal loans including those through the Harmoney platform jumped 55%, and reverse mortgages increased 8.2% in New Zealand and 10% in Australia. The unit's loan book was $1.69 billion at the end of June.

Heartland's business banking increased net operating income 5.4% to $43 million with assets of $907 million and its rural division boosted income 9.6% to $26.3 million on $552 million of loans.

The bank's impairment expenses rose to $13.5 million in the 2016 year from $12.1 million the year before, mainly because of the increase in personal and motor vehicle loans and an increase in the number of auto loan write-offs.

The bank increased its provisioning for potentially bad rural loans to provide a buffer against the dairy sector, with dairy farms accounting for 7% of Heartland's total loan book.

(BusinessDesk)

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