Heartland Bank could pull out of home loan market, shareholders told
Thursday, 31 October 2024
New Zealand-owned Heartland Bank could pull out of the home loan market.
Challenged at its annual general meeting on Wednesday by a shareholder disappointed at the unprofitably thin margins on its home loans, executives at the bank signalled Heartland could exit the mortgage business.
Heartland’s New Zealand chief executive Leanne Lazarus said: “We've made no decision on it as yet, but the concerns you raise are very valid ones. We've had multiple conversations at the board about that.”
But Heartland director Bruce Irvine said: “We have concluded that it's not an area that we want to play in. We've still got the offering there, but in fact, it is a non-strategic area, and we will be doing something about it.”
Heartland Bank specialises in reverse mortgages for retirees who need to raise money to supplement their incomes, as well as other niche areas of finance that big banks are not interested in like car finance and livestock finance for farmers.
But the bank also currently offers traditional home loans that came under scrutiny at the company’s AGM, where shareholders expressed their unhappiness with the bank’s languishing share price, and cut to shareholder dividend
Heartland chair Greg Tomlinson told grumpy investors: “We are focused on fixing this”.
“We acknowledge that key metrics essential to shareholders’ return need improvement. Our share price has not performed well in recent times.”
One shareholder asked Tomlinson why shareholders should trust a board and executive when the bank’s share price was at a 10-year low.
Tomlinson said: “We can't dictate the market, but to be fair, we've got a job to do to lift performance. So that's on us.”
But he said: “Like you all here, we are shareholders, and so we wear it on our sleeve.”
Heartland has seen its share price fall by 29% in the past 12 months on New Zealand’s NZX sharemarket, a period in which investors saw the bank deliver a lower profit as bad debts rose, a fall in earnings per share, and a decreased dividend paid to shareholders.
It had been a “challenging” year, Tomlinson said, with profit after tax falling to $74.5m from $95.9m in the prior period. However, it was also a year in which Heartland had completed the overhaul of its core banking system, and become the first New Zealand-owned bank to ever buy an Australian bank.
That was Challenger Bank, which, like Heartland Bank in New Zealand, specialises in reverse mortgages for retirees who own their own homes, but has little ready cash to spend to boost their retirement incomes.
Andrew Dixson, the chief executive of parent company Heartland Group Holdings, told investors the bank was in a position to grow strongly.
But he also said the bank was developing “realisation” strategies to sell out of, or run-down to zero, some of its “non-strategic” assets.
Irvine said the bank’s traditional mortgages were among the non-strategic assets.
Other non-strategic assets included business loans valued at around $74m and rural loans of $114m.
The move by Heartland Bank comes as MPs are inquiring into competition in banking, especially in rural lending, though they are also probing whether banks’ climate change strategies are reducing banks’ willingness to lend to farmers.
Heartland is one of the banks summoned to appear before the Finance and Expenditure select committee inquiry into banking.
Like larger banks, Heartland was also embarking on a decarbonisation strategy, including understanding the emissions of companies it lends to.
It has already started to engage with the 100 largest Australian livestock finance customers to understand their on-farm emissions by the end of the 2025 financial year, and ensure they have an emissions reduction plans in place by the end of the following financial year.
Heartland Bank has joined with other smaller banks, including Kiwibank, The Co-operative Bank and SBS, to call for changes to capital rules that make lending more costly for smaller banks.