Heartland writes off nearly $50m, says reverse mortgages still strong

Heartland Group says the quality of its reverse mortgage and livestock portfolios remain strong and its recently acquired Australian bank is unaffected even as it announces $49.6 million of impairments for the six months ended Dec 31.

The local bank says the impairments relate mostly to its motor finance and business lending portfolios which have been impacted by continued economic deterioration in New Zealand.

Heartland is due to report its financial results for the six months on Thursday, Feb 27.

The impairments mean Heartland expects to report a net profit between $2 million and $5 million, subject to review by its external auditors, compared with its previous first-half net profit of $37.6 million.

It says the board doesn’t expect the impairment will prevent it from paying a first-half dividend.

Heartland says the NZ economy shrank 1.1% during its latest first half, the largest six-month fall in GDP since mid-1991, excluding the covid period.

It says that while there may be some positive economic tailwinds emerging in its second half from further interest rate cuts and an increase in credit demand, it expects economic conditions for NZ consumers and businesses “will remain challenging,” particularly for the forestry, transport, agriculture and construction sectors.

While it currently expects no further arrears from its motor finance and Open-4-Business loans in the second half, but that if conditions deteriorate further “then additional losses could result” of up to $8 million in write-offs and up to $5 million in specific provisions.

Reverse mortgages account for 29.2% of Heartland’s NZ loan portfolio.

The company says the Australian bank’s transition from mostly wholesale funding to a wholesale and deposit funding mix is progressing well and that its reverse mortgage portfolio in Australia continues to grow strongly.