Heartland Bank is chipping away at car loan troubles but Forsyth Barr analysts say tough times for the bank aren’t over yet

Despite Heartland Group Holdings announcing arrears improvements in its motor finance portfolio, analysts at investment services firm Forsyth Barr say Heartland Bank is “not out of the woods yet”.

In a research report published on Thursday, Andrew Harvey-Green and Benjamin Crozier have retained a neutral rating for Heartland Group Holdings, despite a “solid” third quarter update out of the bank earlier this week.

“Overall, we walk away with the belief that HGH has regained control of its operating expenses (OPEX) and is focused on lending quality and portfolio rationalisation rather than receivables growth,” the pair wrote.

However, they added that New Zealand's soft economic conditions have continued to pressure Heartland's business lending.

Heartland announced to the NZX on Tuesday that the bank is still on track to reach an underlying net profit after tax (NPAT) of at least $45 million in the twelve months to June 2025.

Heartland said its net interest margin (NIM) had risen by 28 basis points in the three months to March 2025. Heartland said improvement was seen in both Heartland Bank and Heartland Bank Australia.

Both banks’ operating expenses remained stable in the third quarter, according to Heartland, and are on track to meet operating expense expectations for the six-month period ending June 30.

Heartland said asset quality improvements are also starting to show in its Motor Finance portfolio following the introduction of more prescriptive collections and recoveries policies for the Heartland’s NZ bank which had been revealed alongside its $49.6 million impairment in February.

Heartland had announced the $49.6 million impairment to the market prior to the release of the bank’s half-year results in February. Heartland said at the time that it was taking  “a more proactive and prescriptive approach” to car and business loan arrears management.  

This included Heartland Bank implementing recovery action sooner in the collections cycle for motor finance customers in arrears who were “unable or unwilling to work with Heartland Bank to develop corrective solutions”.

Heartland told the NZX on Tuesday that the introduction of more prescriptive collections and recoveries policies had meant early recovery efforts for the bank’s motor finance loans written off in February 2025 had “exceeded expectations”.

As of the end of March, Heartland has recovered 49% or $1.9 million of the $3.9 million in expected motor finance recoveries.

“More resources are now focused on addressing earlier stage arrears. This is reducing the number of loans moving into arrears and through the arrears cycle,” the bank said in a presentation accompanying Tuesday’s market announcement.

Heartland said due to the time required for vehicles to be repossessed and have debt written off and transferred to a debt collection agency, a total of $3.5 million in non-performing loans (NPLs) are now more than 365 days past due. 

The bank wants these arrears cleared before the end of June.

Harvey-Green and Crozier said that the “key swing factor” on Heartland Bank achieving its FY25 guidance will likely  be based on the bank’s fourth quarter impairments. 

“HGH expects impairments slightly above a BAU level, and we see risk to this rising – particularly if the NZ economic rebound continues to struggle,” they wrote.

“While continued falling interest rates are supportive to NIM expansion, they are falling for a reason – the NZ economy continues to remain sluggish.”

Heartland targets niche markets like reverse mortgages, vehicle lending and livestock finance where bigger banks are not aggressively competing. It also offers business and home loans as well as investment and saving options.

In February, Heartland Group’s half-year underlying net profit fell to $3.6 million due to the hit from the $49.6 million impairment. Underlying net profit came in at $10.7 million. 

The Group’s operating expenses rose 47.5% or $31.6 million to $98.1 million in the half-year to December 2024. Heartland Group Holdings’ net operating income (NOI) also edged up 8.4% or $12 million to $155.1 million.