Wednesday 7th December 2011
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Heartland New Zealand, which took on PGG Wrightson’s finance unit this year, has been given a ‘stable’ outlook for its investment grade credit rating by Standard & Poor’s.
The ratings company affirmed the lender’s BBB- rating and took it off a ‘negative’ outlook after reviewing Heartland under its new criteria. It had initially put the lender on notice over its earnings outlook and exposure to legacy property loans.
S&P said the better outlook came from the expectation Heartland will succeed in lifting its asset quality and cement its position as a newly formed financial institution with improving earnings.
“Having the rating not only affirmed, but the outlook improved to ‘stable’ is particularly pleasing given many banks around the world are being downgraded,” chief executive Jeff Greenslade said in a statement. “The investment grade rating underpins the strength and strategy of Heartland.”
Last week, the lender flagged a first-half profit of up to $10 million, while at the same time trimming the top end of its annual forecast earnings range by $2 million. Heartland blamed slower-than-expected increase in interest margins due to a late start in its rural strategy and subdued retail demand in Christchurch.
Still, S&P said Heartland’s business position was characterised as ‘weak’ due to the dominance of the Australian-owned banks in New Zealand which have larger and more established customer bases than the lender.
“Heartland’s business stability could come under significant stress should larger market participants materially step up competition, particularly as Heartland works toward establishing its business profile as a bank,” the report said.
The lender is more diversified than some of its peers, and “Standard & Poor’s maintains a favourable view of Heartland’s management, which has to date successfully managed a range of complex issues relating to the formation of the new group.”
The lender’s capital and earnings were described as ‘very strong’ due to the Wrightson Finance acquisition and $58 million capital injection in August, though its risk position was ‘moderate’ due to the exposure to commercial property loans. Heartland’s funding position was deemed ‘below average’ due to its reliance on retail funding, while liquidity was ‘adequate’.
Heartland was formed through a merger of Pyne Gould’s Marac Finance unit and the Canterbury and Southern Cross Building Societies, and later purchased Wrightson’s finance arm for some $100 million. It’s currently in the process of applying for a banking licence.
The shares were unchanged at 47 cents in trading yesterday, and have shed 47 percent this year.
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