The recently-restructured lender has a capital ratio of 13.2% but would have to lift this to about 15% to meet the new central bank requirements. The central bank announced a consultation last week on the capital adequacy rules, designed to shore up the banking system and force lenders to hold 20%-60% of additional cash on their balance sheets. Economists at BNZ and Kiwibank believe the move will slow credit growth and see lenders raise rates.
The proposals caused Heartland's share to tumble nearly 7% last week, as markets weighed the fallout for the lender and the impact on smaller players in the market. Macquarie analysts estimated Heartland would need to hold an extra $90 million. Other major lenders also saw a share price drop last week, including ANZ, which fell by 3%.
Heartland, run by CEO Jeff Greenslade (pictured), said its new corporate structure gives it " flexibility to mitigate the impact of any future changes". It said its reverse mortgage business would not be affected by the proposals.
Heartland played down the potential impact of the RBNZ rules, but said they could prompt a search for acquisition opportunities: "Heartland does not expect the proposal to result in any changes to Heartland’s underlying business model, but does believe that the proposal may give rise to increased M&A activity. Acquisitions remain a part of Heartland’s growth strategy, and Heartland will consider any acquisition which is value."
The RBNZ's new rules would see New Zealand adopt one of the strictest capital adequacy regimes in the world. Ratings agency Fitch believes New Zealand lenders will be able to cope with the additional cash requirements, but expects them to cover their costs by lending less and raising interest rates.
In a report issued this week, Fitch said New Zealand's major banks will need to raise an extra $14 billion, with major lenders accounting for $13 billion of that figure. Fitch said another $6 billion would be needed to replace non-compliant "tier 1 instruments".
