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Along with its financial results for the year ending on 30 June 2018, Heartland Bank issued a restructure proposal that would see it becoming a wholly owned subsidiary of a new New Zealand Stock Exchange-listed non-bank, called Heartland Group Holdings, under which its Australian reverse mortgage business would also operate.
By sitting outside Heartland’s banking group, its Australian reverse mortgage business will no longer be “constrained” by the capital requirements of the Reserve Bank of New Zealand (RBNZ).
Speaking with Mortgage Business, Heartland CFO David Mackrell said that the “primary driver” for the restructure was the bank’s preference for secured funding, explaining that the RBNZ has restrictions around the proportion of funding that can be secured.
The restrictions would hamper its growth plans for its Australian seniors finance business, which has grown faster than other divisions of the banking group in the last financial year, Mr Mackrell said.
Acknowledging the need for greater funding flexibility to support ongoing growth, the CFO said that restructuring made more business sense than trying to find alternative sources of funding.
“[The Australian reverse mortgage business] is really important to us, and as a business which is growing strongly, if we were not to do this [restructure], then funding that growth may be more difficult. This really creates more opportunity and more flexibility to continue that growth,” the CFO said.
The CEO of Heartland Seniors Finance, Andrew Ford, noted that reverse mortgages in Australia grew by NZ$159.3 million (AU$144.5 million), or 31 per cent, to NZ$676.8 million (AU$613.8 million) in the 12 months to the end of June 2018.
Total net receivables in Australia increased by NZ$200.7 million (AU$182 million), or 39 per cent, to NZ$721.2 million (AU$653.9 million).
“We’re seeing a strong increase in demand [for reverse mortgages in Australia], where there is a massive opportunity with 20,000 Australians turning 65 every month. There’s an opportunity for us to help them live a more comfortable retirement, so we’re positioning [ourselves with] the ability to continue that strong growth,” Mr Ford said.
The CEO further revealed that the Australian Seniors Finance business, which is the third biggest reverse mortgage lender in Australia, had more than doubled its number of accredited brokers to over 400 in the last financial year, and that broker-originated reverse mortgages accounted for 65 per cent of all such loans.
“Brokers are an absolute key part of our business. About two-thirds of our business comes from brokers, so it’s a market that we’re very committed to,” Mr Ford said, clarifying that the restructure will have no impact on brokers.
At present, Heartland’s Australian reverse mortgage business operates free of the Australian Prudential Regulation Authority’s oversight, as it’s not an authorised deposit-taking institution (ADI) and does not intend on becoming one.
Instead, it is regulated by the Australian Securities and Investments Commission (ASIC).
As part of the restructure, which Mr Mackrell indicated would provide no tax benefits, the new NZX-listed Heartland Group Holdings, will also seek a foreign exempt listing on the Australian Securities Exchange (ASX). This will provide the group with access to capital from a bigger share market and allow it to boost its profile, Mr Ford said.
The Heartland board unanimously supports the proposed restructure and will recommend shareholders vote in favour of the restructure in the annual meeting on 19 September 2018.
Heartland, which has a 13.35 per cent stake in peer-to-peer lender Harmoney, had done NZ$26 million (AU$23.6 million) of unsecured personal lending through Harmoney in Australia by 30 June 2018, and NZ$19 million (AU$17.2 million) of business lending through Spotcap.
Heartland entered the reverse mortgage market in 2014 after buying Sentinel in New Zealand and the Australian Senior Finance business for NZ$87 million (AU$78.9 million) from Seniors Money International, which is controlled by Quadrant Private Equity.
[Related: Analysis: How LVR limits helped de-risk the NZ mortgage market]
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