Heartland signs MOU for restricted ADI in Australia

As part of its full-year results released on Tuesday (23 August), Heartland Group Holdings Limited (Heartland), reported a net profit after tax of $95.1 million, an annual increase of $8.1 million.

The group, which operates Heartland Finance in Australia and Heartland Bank in New Zealand, continues “to explore options to establish or acquire” an authorised deposit-taking institution (ADI) in Australia having identified Australia as a key growth market.

Heartland completed its $154.4 million acquisition of StockCo Australia on 31 May 2022 and confirmed it had entered into a $5 million non-binding memorandum of understanding with Avenue Hold Limited, to acquire Avenue Hold and its subsidiary,Avenue Bank.

In Australia, Heartland Finance offers a Well-Life Loan and Express Reverse Mortgage, as well as a small-business loan product, and livestock finance through StockCo Australia.

Its focus is to build on StockCo Australia’s position as a “market-leading provider of specialist livestock finance” for cattle and sheep farmers across Australia, by delivering “growth capital, digital enhancements, and expanding into new market segments”.

Subject to regulatory approvals and transaction completion, Heartland’s acquisition of Avenue Bank would see its existing businesses in Australia sit in or under Avenue Bank, and this would be the “vehicle for growth in Australia”.

Avenue Bank is a restricted ADI, which means it may conduct banking business in Australia for a limited period and subject to specific restrictions, but seeks to progress to becoming a full ADI.

Chief executive Jeff Greenslade said the acquisition of Avenue Hold forms part of its “aspiration to becoming a bank in Australia”.

The aim of acquiring Avenue Bank is to create the potential for a digital bank which, once Heartland assets are transferred into it, “would be profitable”.

The acquisition of Avenue Bank is expected to be complete between June 2023 and June 2024, with Heartland expected to pay $49 million (subject to adjustments).

In results for its Australian reverse mortgage business, Heartland said net operating income went up 8.2 per cent ($39.2 million), with lending up 15.2 per cent ($163.8 million) to $1.24 billion.

Heartland said the growth was driven by the relaxing of COVID-19 lockdowns, growing acceptance of the use of reverse mortgages (allowing borrowers to remain in their home as they age), promotion of the federal government’s Home Equity Scheme, and targeted marketing.

Market share of Heartland’s reverse mortgages grew to 33.1 per cent, marking around one-third of the Australian market.

“Heartland solidified its position as the leading provider of reverse mortgages in Australia, with an origination share of 74 per cent,” Heartland said.

The lender expects demand for reverse mortgages to grow, driven by demographics. Additionally, growth in livestock is driven by global demand for protein, helping insulate the business against current economic challenges.

As the company seeks to improve its digitisation it recently launched its online customer portal, allowing Australian Reverse Mortgage customers to view their loan balance, cash reserve and redraw balances, and current interest rate, with the Heartland Finance Mobile App launched soon after in August 2022.

Home lending growth

The lender also reported its home loans were in a “phase of growth”, despite a slight downturn in the second quarter of the financial year.

Home lending increased $224.8 million (450.8 per cent) to $274.7 million, with a $2.1 million net operating income in its home loan, compared to $0.1 million in its last financial year results.

It said rising interest rates “drove a high volume of applications in FY2022”, as customers sought to lock in competitive rates.

However, indicated growth in Q2 (1 October to 31 December 2021) was adversely impacted by the “unintended effects” of New Zealand’s Credit Contracts and Consumer Finance Act (CCCFA), which bounced back in Q3 with the Home Loans book size increasing by $51.8 million.

“Heartland Home Loans remains in a phase of rapid growth, and is targeting a book size of $495 million by the end of FY2023,” the report stated.

“[It] has also experienced strong customer retention in a competitive market – the retention rate for customers whose fixed rates expired during 2H2022 was 91.1 per cent.”

[Related: Heartland completes StockCo Australia acquisition]