Friday, March 29, 2024

Heartland wary of dairy lending

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Heartland Bank is closely watching the dairy sector as persistently low prices stretch farmers’ balance sheets and lenders’ patience. 
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The Auckland-based bank, which built up its agricultural lending book when it bought PGG Wrightson Finance five years ago, lifted profit 14% to $10.4 million from its rural lending division in the six months to December 31 on a 10% gain in net operating income.

The bank’s rural loan book of $504.6m accounts for about 17% of the company’s lending, which it says is largely for livestock financing, supporting younger farmers and farm transition loans.

Heartland said about 8% of total lending was directly exposed to the dairy sector, with an average loan-to-value ratio at 59%. That implied lending of $234.3m on property valued at $397.1m.

“Heartland remains cautious of market conditions and continues to monitor the dairy sector with close attention,” it said. “Dairy customers are being supported through this challenging period.”

Brokerage OMF estimates dairy farmers will face a third season of weak prices and while the country’s largest agri-lenders have indicated a willingness to support the industry, marginal operations were having their debt capped and being urged to sell.

Heartland recognised an impairment charge on its rural lending of $374,000 in the half compared to $72,000 a year earlier.

However, the lender added $13.3m to its individually impaired rural loans in the six-month period which had previously been recognised as at least 90 days past due payment, but not impaired.

When Heartland bought the Wrightson loan book in 2011 for $100m, chief executive Jeff Greenslade wanted to lift agricultural lending to about a third of the bank’s activity.

That coincided with the larger Australian-owned banks competing more aggressively for agricultural market share, and Heartland was now putting greater emphasis on consumer lending through the likes of niche products including reverse mortgages and the Harmoney peer-to-peer lending platform. 

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