Dual ASX and NZX-listed Kiwi bank Heartland has increased its toehold in the Australian market, announcing it has been granted indicative regulatory approval to acquire Challenger group’s banking arm.
Approval for the takeover, which was required and granted indicatively by both the Australian and New Zealand prudential watchdogs, APRA and the Reserve Bank of New Zealand (RBNZ), comes just over a year and a half after the banks first agreed to the buy out.
Heartland committed approximately $36 million to the takeover of Challenger Bank.
Challenger Bank counts net assets of approximately $22.0 million.
By virtue of the acquisition, Heartland will become the first New Zealand registered bank to acquire an Australian banking (or ADI) licence.
Heartland, a tier two NZ bank and former building society, said the purchase of Challenger Bank is a critical step in its Australian expansion strategy. The bank first entered the Australian market with the acquisition of Australian Seniors Finance (ASF), a specialist reverse mortgage provider, in 2014. ASF was rebranded a year later as ‘Heartland Bank Australia’, serving as a stepping stone for the Heartland group’s ambitious expansion plans in the Australian market.
Four years later, Heartland was listed on the ASX.
Heartland Australia acquired specialist Australian livestock finance business StockCo Australia in May 2022.
With simplification and divestment the order of the day for many financial services firms, Challenger said its decision to sell its banking services arm (formerly MyLifeFinance Limited) was to increase focus on its core life and funds management businesses.
Following the takeover, Challenger Bank will assume the Heartland Bank Australia brand.
Heartland said it will extend its ‘best or only’ strategy in Australia, which commits to providing unique or superior financial products into its operating markets.
Once the acquisition is complete, Heartland boasts it will be the only specialist bank provider of reverse mortgage and livestock financing services in Australia.
Heartland’s Australian Reverse Mortgage and Livestock Finance businesses accounted for NZ$2 billion of gross finance receivables at the end of 2023.
“To accelerate growth in Australia, Heartland will leverage Challenger Bank’s foundation and funding platform, Heartland’s successful track record in Australia, and its New Zealand product and distribution expertise,” Heartland wrote in an announcement to the NZX.
“This will enable Heartland Bank Australia to expand into new product segments in which Heartland Bank has specialist expertise in New Zealand, such as motor finance and asset finance.”
Heartland said its expansion will be enabled through access to Challenger’s retail deposits (totalling $172 million as at the end of FY23), enabling the group “to optimise the advantage of a lower cost of funds”.
“Challenger Bank’s retail deposit growth to date has exceeded Heartland’s expectations. In the period between 30 December 2023 to 29 March 2024, Challenger Bank achieved retail deposit growth of A$702 million at a rate that is 1.74 per cent lower than Heartland Australia’s current cost of funds.”
APRA and the RBNZ’s approval for the takeover was conditional on a promised NZ$210 million (AU$192 million) equity raise by Heartland, which the group also announced it had completed successfully.
Heartland confirmed that proceeds from the equity raise will be used to finance the balance of the consideration payable for the Challenger Bank acquisition, support the expected regulatory capital requirements of both banks, and cater for near-term projected asset growth post-completion.
Founding CEO calls time
With the acquisition now in the final stages of completion, Heartland also announced the forthcoming departure of its founding and long-serving chief executive Jeff Greenslade, who will step down at the end of 2024.
Greenslade served 15 years with the banking group, supporting its transition from a building society to a registered NZ bank.
While a group CEO has yet to be announced, Heartland has appointed Michelle Winzer as chief executive of Heartland Bank Australia.
Winzer joins Heartland from Queensland-based RACQ Bank, where she serves as chief executive.
Heartland recognised Wizner’s more than 30 years’ experience in banking and financial services, including as CEO of Bank of Melbourne, as well as senior roles at CBA, its subsidiary Bankwest, and Westpac.
Chris Flood, currently deputy chief executive of Heartland, has also been appointed acting chief executive of Heartland Bank Australia. Flood will return to his role as deputy chief executive later in the 2024 calendar year to support the handover to Wizner.
The outgoing Greenslade was acknowledged for his seminal role as one of Heartland’s founders, leading the bank through several significant milestones, including its formation in 2011, its various mergers, the receipt of its RBNZ banking licence in 2012, and Heartland’s listing on the NZX in 2011 and on the ASX in 2018.
Over this time, the bank noted that it has grown its gross finance receivables from NZ$1.7 billion in 2011 to $6.8 billion today. Heartland’s NPAT, over the same period, has increased from NZ$7.1 million to NZ$95.9 million.
“For our customers, Jeff has instilled in Heartland a culture and commitment to making it as easy as possible for customers to apply for a loan, open a savings or deposit account, and manage their finances,” said Heartland chair Greg Tomlinson.
“Digitalisation and automation of products, platforms and processes has become a core strategic focus of Heartland’s,” he added.
“Through this strategy, our commitment is to providing customers in New Zealand and Australia with products which are the best or only of their kind.”
Correction: APRA and the RBNZ have given indicative approval for the acquisition. Heartland confirmed that it expects to complete the acquisition by 30 April 2024.
