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  Rating of Heritage Bank Retail Bonds Reviewed and Affirmed at 'BBB+' 

Rating of Heritage Bank Retail Bonds Reviewed and Affirmed at 'BBB+'

Melbourne, Friday 31 October 2014 – A
ustralia Ratings has reviewed and affirmed its credit rating of ‘BBB+’on 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.

Australia Ratings also confirmed its product complexity indicator of ‘GREEN’ on the Bonds, indicating that Australia Ratings considers the Bonds to be a debt investment with simple and straight forward terms and conditions. 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 Cudsi said “the ‘BBB+’ rating continues to reflect the credit quality of Heritage Bank”. Mr Cudsi added, ”earnings and profitability in FY2014 were largely unchanged from FY2013, reflecting heightened competition in the markets for term deposits and residential mortgages. Heritage’s performance in keeping down arrears remains significantly better than the industry average, with only 0.39% of loans in arrears as at 30 June 2014".

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; and
  • 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; and
  • A reliance upon retained earnings to build capital base for future asset growth.












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