Heartland gets looser capital requirements, plans to keep current levels

Wednesday 14th January 2015

Heartland New Zealand, the bank formed from the merger of Marac Finance with Southern Cross and Canterbury building societies, has been granted looser capital requirements by the Reserve Bank, but doesn't plan to ease back on its current levels.

From Jan. 31, the Christchurch based lender's regulatory capital requirements will be in line with other banks after needing higher levels as a condition of its initial registration in December 2012, it said in a statement. That will reduce Heartland's required total capital ratio to being at least 8 percent, tier 1 capital ratio of at least 6 percent, a common equity tier 1 capital ratio of at least 4.5 percent and a buffer ratio of 2.5 percent.

As at Sept. 30, Heartland's total capital ratio was 14.09 percent, above the current 12 percent requirement, tier 1 capital ratio at 13.99 percent, above its 10 percent minimum, and a buffer ratio of 1.99 percent, having not had a minimum requirement under the existing licence.

"Although Heartland Bank holds capital in excess of regulatory minimums, there is no current intention to reduce the amount of capital at the bank level," the lender said.

The Reserve Bank has imposed tougher capital requirements on banks to improve their balance sheets since the global financial crisis, reducing their reliance on short term wholesale funding and increasing their volume of retail deposits.

Heartland has had credit ratings upgrades from Fitch Ratings and Standard & Poor's last year as its focus on niche lending markets allow it to generate bigger margins, despite a riskier lending profile than mortgage lending.

Shares of Heartland last traded at $1.12, and have gained 32 percent over the past 12 months. The stock is rated an average 'hold' based on three analyst recommendations compiled by Reuters, with a median price target of 97 cents.

BusinessDesk.co.nz

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