Profit under pressure but guidance holds
Heartland Group will release its annual financial results on Thursday, with investor focus firmly on the performance of its reverse mortgage loan books in New Zealand and Australia.
The bank said in April that it expected normalised net profit of at least $45 million for the June year – far below the $110.2 million posted in 2023, as weak returns from non-reverse mortgage lending dragged on profitability.
Former CFO Andrew Dixson (pictured), who took over as CEO in September 2024, has been steering the bank away from underperforming legacy businesses that stem from the 2011 merger of CBS Canterbury, Southern Cross Building Society, MARAC Finance, and PGG Wrightson Finance, interest.co.nz reported.
Mixed results across lending portfolios
Not all business lines have disappointed. Livestock lending has emerged as a bright spot, with minimal impairment issues in both New Zealand and Australia.
Within the $689 million NZ Rural portfolio, livestock loans reached $189 million on March 31, while Australian livestock lending grew strongly to A$285 million ($313 million).
However, motor finance – worth $1.592 billion on March 31 – is under restructuring, with tighter collections and a shift toward higher-quality borrowers. Heartland has also closed its Open for Business online lending platform to new applications and is winding down its Online Home Loans product launched in 2020.
Reverse mortgages dominate
Reverse mortgages remain Heartland’s strongest growth engine and are now the bank’s “jewel in the crown.”
The appeal of reverse mortgages is being fuelled by New Zealand’s aging population, cost-of-living pressures, and rate volatility. Stats NZ projects one in five New Zealanders will be over 65 by 2028, underscoring the demand.
In its April update, Heartland reported a group net interest margin (NIM) of 3.69%, with margins higher in New Zealand (3.92%) than in Australia (3.31%).
According to Forsyth Barr analyst Andrew Harvey-Green, reverse mortgages consistently deliver returns above Heartland’s cost of equity.
“Securing a re-rating by investors will require two things,” he said – allocating more capital to reverse mortgages while improving performance across other lending segments.
In New Zealand, Heartland has a dominant market share of more than 90%, with SBS Bank the only other meaningful competitor, holding a $96 million reverse mortgage book on March 31 compared with Heartland’s $1.192 billion in April.
“The lower-hanging fruit has already been taken,” Harvey-Green noted, adding that further growth will rely on convincing a new generation of asset-rich, cash-poor retirees to embrace the product.
Rising competition in Australia
Australia has become a tougher battleground since Heartland entered in 2014. Its reverse mortgage book there has grown to A$1.884 billion ($2.072 billion), but competitors are rapidly scaling.
Household Capital has issued A$590 million of loans since 2019, Gateway Bank’s portfolio grew to A$260 million last year, and newcomer Inviva reached A$150 million earlier this year. The federal government’s expanded Home Equity Access Scheme has also drawn demand, offering smaller, low-cost loans to eligible retirees.
Heartland is adapting by shifting from wholesale to cheaper retail deposit funding and expects to be 80% retail-funded by June 2025 – a move the bank says is “supporting NIM expansion.”
Analyst outlook
Forsyth Barr forecasts Heartland’s normalised net profit will come in at $46.2 million for FY25, before recovering to $83.3 million in FY26 and $105.7 million in FY27.
“Reverse mortgages remain a key driver of returns, but growing the book will require both capital allocation and navigating rising competition, particularly in Australia,” Harvey-Green told interest.co.nz.
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