Heartland Group profit slumps, confirms wind-down of NZ home loan book

Thursday, 27 February 2025

NZX sharemarket-listed Heartland Group has confirmed it is winding down its home loan book after posting a 90.4% drop in half-year profit.

The announcement of its slim $3.6 million net profit after tax for the six months to the end of December came just over a week after it wrote down the value of its New Zealand banking operation by $49.6m.

The banking group, which owns banks in New Zealand and Australia, has published a list of non-strategic assets that no longer figure in its future plans.

It not only includes its New Zealand mortgage book of loans sourced through a low-cost online process, but it includes some forms of rural lending.

In a presentation to shareholders, the bank outlined its exit strategy for home loans.

“The portfolio is being wound down through organic repayment. Heartland expects over 80% of the total balance will be repaid by the end of 1H2026,” it said.

It planned to exit some forms of rural lending, but remain in the lending to farmers to buy livestock. The winding back of its rural lending comes as MPs seek ways to increase rural lending nationally following complaints from farmers that big banks are not treating them fairly.

Heartland told shareholders its exit strategy for rural lending would come from borrowers refinancing, or selling the properties their loans were secured against.

Heartland will also sell two farms and an apartment block it owns.

“Heartland’s fundamental purpose is to maximise shareholder value,” the bank told shareholders.

“This means ensuring capital is allocated to the parts of the business that generate strong returns, measured by return on equity. Across its two banks, the core specialist banking products are deposits, reverse mortgages and rural lending, with the addition of motor finance for the New Zealand bank.”

Reverse mortgages are loans taken out by retired homeowners to free up cash to fund retirement spending. Interest on the loans is capitalised, and repaid when borrowers finally sell their homes.

Strong reverse mortgage growth continued in both Australia and New Zealand, the banking group told shareholders, with its total loans up 15.3% in New Zealand and 15% in Australia.

Lending to people to buy motor vehicles dropped as economic conditions remained challenging, the banking group said.

The challenging conditions were behind a “substantial increase” in troubled loans on which borrowers were seriously behind on repayments.

The banking group also signalled it was working on a new loan product aimed at older New Zealanders to sit alongside its reverse mortgages.

“Heartland Bank is launching a new product designed to allow people to access the equity in their home to enable the purchase of a retirement village property. The new Village Access Loan product is being piloted with a premier provider of aged care living solutions,” the bank said.

Heartland told shareholders it intended to simplify its business by exiting non-strategic assets.

“The majority of these non-strategic assets are New Zealand assets which Heartland Bank has accumulated over time to its current state of maturity, and are no longer a strategic fit for the organisation,” it said.

Heartland Group’s half-year net profit after tax of $3.6m was down from $10.7m in the same period the previous year.

While Australian economic conditions were expected to pick up in Australia in the coming months, they would remain challenging in New Zealand.