1 Comment 1 Commentby Jenny Ruth
S&P also affirmed Heartland's BBB- credit rating. It is also suggesting if Heartland gains the banking license it is seeking, it may upgrade the rating further, although it says it doesn't expect an upgrade in the short term.
Other upgrade triggers could be an improvement in Heartland's deposit reinvestment experience - it averaged 74% at October 31 - and "evidence of its ability to compete with other New Zealand banks on factors other than price or underwriting standards.
On the other hand, an unexpected rise in non-performing loans or credit losses could trigger a ratings downgrade.
However, S&P no longer seems so worried about Heartland's non-performing property loans -which prompted the agency to put Heartland's outlook on negative in the first place.
Now it says headwinds in the commercial property market mean it could take longer for the company to "restore its asset quality and earnings profile."
S&P highlights what it calls Heartland's "weak" business position and the "vulnerability" of its retail funding base in the context of the major banks which dominate the New Zealand market.
"Heartland's business stability could come under significant stress should larger market participants materially step up competition," it says.
S&P also worries about what might happen to Heartland's funding base if the major banks were to compete more aggressively for domestic retail deposits.
But it "maintains a favourable view of Heartland's management which has to date successfully managed a range of complex issues relating to formation of the new group."
Heartland group treasurer Craig Stephen says S&P seems confident his company has its problem property loans under control.
"We haven't let them down. We haven't let our investors or our shareholders down. We've delivered on everything we said we would."
Heartland proposed retail bond issue has been postponed but could happen in the first quarter of next year.
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