Wannabe bank Heartland NZ reviewing 2012 profit forecast which predicts profit of three times 2011's NZ$7.1 mln

Heartland New Zealand, the building society with ambitions to become a bank, is currently updating its profit guidance for the June 2012 financial year which forecasts a potentially more than three-fold increase in profit.

In a presentation made at Heartland's annual meeting in Ashburton CEO Jeff Greenslade notes the objective of delivering net profit after tax of between NZ$20 million and NZ$24 million in the year to June 30, 2012, up from NZ$7.1 million in the year to June this year.

However, he says: "The forecast is in the process of being updated, further guidance will be provided once complete."

"Drivers" of financial performance include asset growth, asset mix, costs, liquidity, funding and asset quality, Greenslade adds. In August Standard & Poor's affirmed Heartland's BBB- credit rating but lowered the outlook to "negative" from "stable" saying its asset quality and earnings profile weren't consistent with the current rating and were weaker compared with other similarly rated peers. The rating is S&P's lowest investment grade rating and is seen as a key pre-requisite to obtaining bank registration.

The presentation notes that Heartland, which has deposits covered by the extended Crown retail deposit guarantee scheme until December 31, had liquidity of about NZ$500 million at October 21, down from NZ$634 million when the company reported its annual results in August. The NZ$500 million includes NZ$150 million of cash, NZ$200 million worth of committed, undrawn bank loans from BNZ and Westpac, and NZ$150 million of unutilised securitisation facilities from Westpac.

Earlier this month Heartland repaid NZ$92.3 million to PGG Wrightson Finance bondholders after completing its takeover of most of the rural lender's assets and liabilities.

In the annual meeting presentation Heartland says: "As at October 21, 2011, liquidity was around 27% of total retail deposits and exceeds guaranteed term deposits maturing before expiry of the Crown guarantee on December 31, 2011."

Heartland says its year-to-date reinvestment rate is 74% and 99% of new funds and 96% of reinvestments during October - up to the 21st - were non-Crown guaranteed or invested out beyond December 31.

Meanwhile, Greenslade reiterated that  "engagement" with the Reserve Bank over obtaining bank registration was underway and that the timing of any granting of registration, if the application succeeds, is in the Reserve Bank's hands.

Heartland was created through January's merger of Marac Finance, CBS Canterbury and Southern Cross Building Society. It was formed with the aim of becoming a sharemarket listed, New Zealand controlled bank that doubles its NZ$2.2 billion asset base within five years by growing lending to families, small and medium sized businesses and farmers. Heartland will focus its rural sector lending on working and seasonal capital.