High repayments squeeze Heritage loan growth

The bank posted its 2021 financial year results on Wednesday, revealing it wrote $2.4 billion in new loans during the year, 31.6 per cent more than the year before.

Brokers had sourced around 58 per cent of the new approvals, originating a record $1.4 billion in loans for the bank.

However, despite the influx in new loans, the bank’s total loan book had increased by $264 million, or 3 per cent from the year before, to $8.9 billion.

A spokesperson for the bank confirmed there had been “quite a high repayment rate”, with customers not spending as much on travel or other expenses through COVID-19, and choosing to pay down loans.

Heritage chief executive Peter Lock also referred to the COVID effect, while commenting the FY21 results had reflected broader trends across the financial services sector.

“With limited travel possible, and with lingering concerns about what COVID meant for the future, many people chose to put more money into savings or pay down their loans,” Mr Lock said.

“At the same time, with interest rates at historic lows, investing in property grew in popularity, with real estate markets booming across the country. That has translated into excellent results for us and strong levels of growth.”

The results have come midway through Heritage’s due diligence process on the proposed merger with People’s Choice Credit Union.

Data from S&P has shown People’s Choice holds a loan book totalling around $8.1 billion. Consolidating with Heritage would create a combined $17 billion loan book, surpassing the largest mutual lender, Great Southern Bank, with its $13.5 billion total.

Should the boards of Heritage and People’s Choice decide to pursue the deal, it would be put to a member vote early next year.

Heritage chair Kerry Betros commented: “It would be a true merger of equals, bringing together two organisations of a very similar size, who share a commitment to mutuality and serving our members.

“From initial discussions, we believe a merger would give us the increased size and scale needed to remain competitive in the banking sector, and create a new national force for good in Australian banking.”

Looking at the bank’s overarching FY21 results, Heritage recorded a profit after tax of $44.8 million, up by 23.5 per cent year-on-year.

Total consolidated assets had grown by 11.2 per cent during the year, reaching $11.9 billion at the end of June.

Retail deposits had also grown by 18.7 per cent to $9.8 billion.

Heritage has previously flagged plans to open two new branches in NSW by the end of the year – one in Tweed Heads and one in Macquarie Park, Sydney.

Mr Lock commented that while technology has changed banking, he doesn’t agree that mass branch closures are in the interests of members.

“People still want that personal contact and the chance to talk to someone face-to-face, as well as having access to great online banking services and app,” he said.

“We are continuing to transform our operations and incorporate the best that digital technologies have to offer, while still delivering outstanding customer service.”

Heritage is also working on replacing its core banking system, aiming to overhaul its 40-year-old platform.

“We are continuing to transform the way our business operates, in response to the needs of our members and the changing banking environment, so that we can remain strong into the future,” Mr Betros said.

Mutual merger mania

Similar to Heritage and People’s Choice, fellow mutuals Newcastle Permanent and Greater Bank have signalled they are exploring a consolidation.

Newcastle Permanent CEO Bernadette Inglis told Mortgage Business that mutual banks that do not have scale that will be unsustainable, in the face of the growing technology costs.

Meanwhile, Teachers Mutual Bank Ltd and Pulse Credit Union are looking likely to merge in November, after an overwhelming majority of Pulse members backed the deal.

Subject to final regulatory approvals, the amalgamation would be the second this year for Teachers Mutual, after its Firefighters Mutual Bank brand wrapped its merger with Firefighters Credit Co-operative in May.

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