19 Aug 2015

Heartland gets ready for more bad debts

4:44 pm on 19 August 2015

Heartland New Zealand is making bigger provisions for bad debts in the year ahead as it expects consumers and farmers to come under pressure from weaker economic growth.

New Zealand money. Currency. Twenty dollars note. 2 dolars coin, 1 dollar coin.

Photo: RNZ / Diego Opatowski

The bank's annual net profit jumped 34 percent to $48.2 million in the year to the end of June, from $36 million for the same period last year.

Heartland said its core consumer, business and rural divisions all grew strongly.

However, bad debts more than doubled - from an unusually low $5.9 million, to $12.1 million.

The bank is sticking with its forecast for net profit to rise to between $51 and $55 million for 2016, including an allowance for higher impairments.

The chief executive, Jeff Greenslade, said the softer economy would affect growth but it was less exposed than other banks to the dairy sector.

He said loans to dairy farmers totalled $218 million, less than 8 percent of its overall business.

Mr Greenslade said more farmers would lose money in the year ahead due to continuing low milk payouts, but Heartland was well positioned to support its dairy customers.

Meanwhile, growth in lending has pushed the country's five major banks' combined pre-tax profit up 5 percent in the first half of the year.

The PwC New Zealand Banking Perspectives report shows profits rose $145 million dollars to $3.3 billion, compared with the previous six months.

PwC partner Sam Shuttleworth said corporate lending had grown 4.1 percent, the highest since the late 2000s.

He said banks were facing new challenges with strong economic conditions predicted to slow.