Heartland Bank, the Auckland-based lender, has told investors it is monitoring the dairy sector "with close attention" at a presentation and has warned farm values could fall 40 per cent from peak to trough if the downturn continues or worsens beyond current expectations.
Exposure to dairy farmers makes up 8 per cent of its total lending book and 17 per cent of its net receivables, which is the total money owed to the bank by customers minus amounts the bank accepts will never be repaid and has written off.
The presentation was delivered by chief executive Jeff Greenslade, head of banking Chris Flood and chief financial officer Simon Owen and has been published to the stock market operator, NZX.
The trio say that in the bank's opinion, the majority of dairy farms could convert to sheep or beef farms if dairy prices stay low or get worse such that the viability of the industry is threatened. They say dairy farms values would effectively be underwritten by the value of sheep and beef farms.
Heartland's average loan to value ratio for its dairy loans is 59 per cent and the bank says profitability would reduce if such a switch occurred. The bank's leaders insist it would remain profitable with no impact on capital if such a scenario came to pass.
