Analysts at investment services firm Forsyth Barr say the $49.6 million impairment Heartland Group Holdings’ announced on Tuesday has “severely dented” the share market’s confidence in Heartland.
Heartland Group Holdings told the market on Tuesday it was taking “a more proactive and prescriptive approach” to car and business loan arrears management. This, along with a weak NZ economy, were cited as reasons for a $49.6 million impairment. Derisking and repositioning some of its NZ lending portfolios also contributed.
This will sink the bank’s half-year profit to between just $2 million and $5 million, much lower than the $37.6 million Heartland reported in the equivalent period of its previous financial year. Heartland Group Holdings is releasing its financial results for the six months to December 2024 on the 27th February.
Analysts Andrew Harvey-Green and Benjamin Crozier described Heartland’s impairment news as “worse than expected” in a research note published on Wednesday.
“This update has shaken market confidence in Heartland, and rebuilding trust will take time,” they said.
Harvey-Green and Crozier pointed to 85%, or $35 million, of Heartland’s non-business as usual (non-BAU) impairments having come about since Heartland’s last market update in November 2024.
“While there is no doubt economic conditions in NZ have been soft, they have not dramatically weakened over the past two to three months and the economic downturn has been well known. The impairments raise concerns about Heartland's systems and policies; concerns that cannot be erased overnight,” the pair said.
“Significant impairments in motor and business lending are disappointing, especially given the known economic softness and the lack of further material deterioration in the economy since Heartland’s late-November 2024 update. Rising costs have also pressured profitability.”
Heartland described the $49.6 million as a “substantial increase” in impairment expense for the bank on Tuesday, up from the $23.9 million in the first-half 2024 but that it was in the long-term interests of the business, its customers and Heartland’s shareholders.
Harvey-Green and Crozier said the market's confidence in Heartland had been “severely dented” and to rebuild the market’s confidence, Heartland needed to:
- Provide more colour on the size and performance (non-performing loan ratio) of its legacy (pre-2020) book vs more recent lending—the latter will need to show better performance vs the former
- Return to a more business-as-usual (BAU) impairment level
- Exit this period of elevated cost growth
“We see it taking time for management to show this, and for the market to regain confidence in the growth story. However, once Heartland is past the worst, we expect it will re-rate upwards,” they said.
Forsyth Barr has — currently — retained its 'neutral' rating for the company's shares.
Heartland’s share price was flat on Wednesday after falling 14.8% in Tuesday trading.
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