The dairy sector made up 7% of all lending on the June 30 full-year balance date, compared to 8% on December 31.
The net group loan book (receivables) on June 30 was $3.21 billion, up $252 million or 9% on a year earlier.
Reporting strong profit growth for the year, Heartland said it had increased actual dairy farm lending, mainly through extra support to existing clients.
Most of the 13% increase in rural lending over the year was in the sheep and beef sector, mainly for livestock but also for term and working capital loans.
Sheep and beef was traditionally the bigger part of its rural lending but the bank said it still had an appetite for new business with sharemilkers and dairy farmers who met lending criteria.
Heartland reported an after-tax profit of $54.2m for the June 30 year, an increase from $8.2m a year earlier. The result was well received and the shares traded higher on the NZX afterwards.
Rural division loans totalled $552m, up nearly $65m for the year.
It was the third-biggest of the bank’s three divisions, with Households at $1.7b and Business at $899m.
The bank continued to monitor the dairy sector, manging director Jeff Greenslade said.
He repeated an earlier comment a continuation or worsening of the sector’s viability could result in a material reduction in dairy farm values.
In that scenario, Heartland’s profitability would be likely to fall but it would remain profitable and an impact on its capital position was unlikely.
While the ratio of dairy farm lending had fallen slightly, the average loan-to-value ratio for these loans increased to 64% from 59% at the half-year, reflecting the extra help to existing clients, chief financial officer Simon Owen said.
The total asset impairment expense for the bank was $13.5m, up from $12.1m a year earlier.
In the Rural division the impairment expense rose to $2.95m from $510,000.
Separately, the bank made collective provisions of $2.9m (up from $600,000) in the Rural division, with provision for individually impaired assets increasing by $100,000 to $800,000.
The collective provisions provided Heartland with a buffer against any continued downturn in the rural sector, particularly in dairying, Greenslade said.
The net operating income for the Rural division was $26.3m, an increase of $2.2m on the previous year, reflecting overall growth in the loan book.
Heartland would pay a final dividend of 5c a share (with full tax credits) to shareholders on October 7, taking the total for the year to 8.5c. That was up from 7.5c a share the previous year.
The bank ended the year with a strong shareholders’ equity ratio of 14%.
Directors forecast an after-tax profit in the $57m to $60m range in the year to June 30, 2017, Greenslade said.
