Bank enjoys boost in retail deposits
Heartland Group has declared a net profit after tax of NZD$48.7m, up 2.4% on the first half of 2022.
In its half-year results for the six months ended December 31, 2022, Heartland Group Holdings (Heartland), which operates Heartland Finance in Australia and Heartland Bank in New Zealand, confirmed its total net operating income was NZD$141.7m, up 8.4% on the first half.
Heartland Bank said it was considering making an offer of up to $75m (with the right to accept oversubscriptions of up to an additional $50m at Heartland Bank’s discretion) of unsecured subordinated notes to New Zealand investors and certain overseas institutional investors.
In its half-year report, Heartland Bank increased borrowings by NZD$249.7m (5.7%) to $4.5bn. Deposits grew NZD$480.5m (13.4%) to $4.07bn, which it said was driven by “competitive pricing on targeted products”, including its Notice Saver offerings.
Over the first quarter of the financial year (ending June 30, 2023), Heartland Bank said it experienced the highest growth rate in retail deposits of all main and domestic banks in New Zealand.
Heartland Bank CEO Leanne Lazarus (pictured above) said the bank was quick to pass on the benefits of Official Cash Rate rises to customers, resulting in attractive savings rates.
“In Q1 of FY2023, Heartland Bank experienced the highest growth rate in retail deposits of all main and domestic banks in New Zealand, based on balance sheet data from the Reserve Bank of New Zealand (RBNZ) for Q1 of FY2023,” Lazarus said.
Net operating income for the New Zealand reverse mortgages business was NZD$20.5m, up $5.1m (33.4%) compared to the first half of 2022. Receivables increased $87.4m, up 24%.
The New Zealand reverse mortgages business continued to experience strong demand and growth due do a reverse mortgage being a “solution” to the ongoing strain of cost of living pressures on older homeowners and increased awareness and acceptance of reverse mortgages, Heartland said. It’s longstanding lead pool and recognition within the market were also contributing factors.
“The outlook for New Zealand reverse mortgages remains positive, with additional demand from cost of living pressures more than offsetting the impact of lower house prices and higher interest rates,” Heartland said in the results.
Heartland Group half-year results highlights (to December 31, 2022)
- Net profit after tax (NPAT): $48.7m, up 2.4% on 1H22
- Underlying NPAT: $54.7m, up 16.2%
- Gross finance receivables: $6.5bn, up 10.1%
- Underlying return on equity: 12.1%, down 7 basis points
- Net interest margin (NIM): 3.97%, down 34 basis points (underlying NIM of 4.02%, down 29 basis points)
- Net interest income (NII): $138.9m, up 12.1% (underlying NII of $140.8m, up 13.6%)
- Net operating income (Group): $141.7m, up 8.4%
- Impairment expense: $9.2m, up 8.3%
- Net operating income (New Zealand reverse mortgages): $20.5m, up 33.4%
- Net operating income (New Zealand asset finance): $14.9m, down 4.8%
- Net operating income (New Zealand motor finance): $32.7m, down 9.9%
- Net operating income (Heartland Bank, Harmoney personal lending): $3.4m, down 35.4%
- Net operating income (New Zealand online home loans): $2.1m, up 267.2%, receivables $27.6m, up 19.9%
Online home loans book growth slows
The rate of online home loan book growth over the half year reduced, which Lazarus said was driven by the sharp decline in property sales and new mortgage volumes.
“Conversion rates improved towards the end of 1H2023 due to platform updates made off the back of the CCCFA amendments which came into effect in July 2022,” Lazarus said.
“These updates have increased approval automation and reduced the friction involved in verifying approvals.”
Expanded criteria to allow lending against terraced homes and townhouses is expected to support a 10% uplift in lending volumes, compared with the previous restriction to standalone homes only, Lazarus said.
Total personal lending down 6.9%
Total personal lending (includes loans originated directly through Heartland Bank and those originated by Harmoney Corp Limited in New Zealand and Australia) was $62.8m over the half-year – down 6.9%.
Heartland personal loans were NZD$43.4m, up 52.9% year-on-year. The New Zealand Harmoney channel was $11.6m, down 73.6%.
“Heartland’s Harmoney personal loans channel is closed to new business and running down,” Lazarus said.
Reverse mortgage portfolios resilient
Noting elevated inflation (7.2% over the September and December 2022 quarters), rising household costs and higher interest rates, Heartland said its loan portfolios had performed well and that overall credit equality remained sound.
Its reverse mortgage portfolios remained resilient to economic factors such as changes in house prices and rising interest rates, with conservative loan-to-value ratios (LVRs), the company said.
As of December 31, 2022, the weighted average current LVR for New Zealand reverse mortgages was 19.7%. In New Zealand, 97.7% of loans had an LVR under 40% or an index adjusted valuation basis, and no loans had an LVR over 60%, Heartland said.
Referring to recent extreme weather events in the upper North Island, namely the Anniversary weekend floods, which were followed by Cyclone Gabrielle, Heartland said that it had been supporting affected customers and employees and had launched a proactive call programme to all customers in impacted regions.
Heartland said it was also focused on supporting vulnerable customers amid the rising interest rate environment, confirming it “intentionally delayed passing on the full impact” of the increases onto some borrower customers.
Additionally, Heartland said it did not pass the full increase on to New Zealand or Australian reverse mortgage customers, as it believed this to be the “socially responsible approach”.
Looking ahead, Heartland Bank general manager retail and reverse mortgages Keira Billot said brokers would continue to play a key role in its reverse mortgages business.
“While we’ve had successful growth in our reverse mortgage book, our dedicated relationship managers continue to work closely with all brokers to educate and raise further awareness, to assist them in diversifying their business,” Billot said.
