Australia Ratings has reviewed and affirmed its credit rating of ‘BBB+’ of the Heritage Bank Retail Bonds (the “bonds”).
This rating is the highest long-term rating in the intermediate category of creditworthiness on the rating scale of Australia Ratings (see the rating scale below). The bonds are senior and unsecured debt obligations of Heritage Bank Limited. A coupon of 7.25% p.a. is payable quarterly in arrears until maturity of the bonds in June 2017.
Australia Ratings’ credit analyst, Chris Dalton said “the ‘BBB+’ rating continues to reflect the credit quality of Heritage Bank”.
Dalton added, ”earnings and profitability in FY2012 were are at levels similar to those in FY2011, partly reflecting slow growth in new residential mortgages. Heritage’s business strategy remains consistent with a focus on residential mortgage lending, retaining buffers to regulatory minimums for capital and liquidity and pursuing some modest diversification through pre-paid cards and origination of mortgages in Western Australia, Tasmania and Northern Territory”.
The credit rating reflects the following key strengths of Heritage Bank’s business:
- a low risk portfolio of residential mortgages with below industry average arrears and losses
- a conservative risk appetite with regard to maintaining capital and liquidity above regulatory capital requirements
- a diversified funding base with experience in raising funds via both wholesale and retail funding markets.
The credit rating also reflects the following key risks to Heritage Bank’s business:
- a slowing of demand and increased competition in the residential mortgage market which may constrain earnings growth
- a reliance upon retained earnings to build capital base for future asset growth.
The ‘GREEN’ Product Complexity Indicator of bonds is confirmed. A GREEN designation indicates the terms and conditions of the bonds are simple and straightforward with a very low level of complexity on Australia Ratings’ five point Product Complexity Indicator scale.
