Heartland Reports 4.06% NIM and Progress on Asset Quality in 3Q2026 Update

Margin Expansion and Asset Quality Improvement Drive Confidence

Heartland Group Holdings Limited (NZX/ASX:HGH) has reaffirmed its underlying return on equity (ROE) target of at least 7% and net profit after tax (NPAT) guidance of at least NZD 85 million for the financial year ending 30 June 2026. The third quarter of FY2026 saw an expansion in the group's average net interest margin (NIM) to 4.06%, up from 3.96% year-to-date, despite some expected compression in the final quarter.

Underlying operating expenses remained controlled, with a cost-to-income (CTI) ratio improving overall to 54.6%, driven notably by Heartland Bank Australia’s enhanced efficiency. Asset quality also strengthened, although impairment expenses rose due to provisioning and write-offs linked to non-strategic assets (NSAs) and Motor Finance non-performing loans (NPLs). The bank is on track to clear Motor Finance NPLs aged 180 to 364 days by the end of June 2026, a key milestone in its asset quality strategy.

Portfolio Growth Anchored by Reverse Mortgages and Rural Lending

Growth momentum was evident in Heartland’s Reverse Mortgages portfolio, which increased by 15.1% quarter-on-quarter to NZD 1.38 billion in New Zealand and by 17.9% to AUD 2.26 billion in Australia. The Rural portfolio in New Zealand also expanded robustly by 27.9%, supported by new intermediary partnerships and regional expansion, including the Livestock Finance segment entering a key growth phase.

Motor Finance and Asset Finance portfolios saw a return to growth in 3Q2026 after a period of subdued activity. Notably, electric vehicle (EV) lending surged, with March volumes tripling the year-to-date average, reflecting a strategic pivot towards higher-quality franchise business. However, Business Finance remained flat, with ongoing challenges in the sector exacerbated by rising fuel costs.

Non-Strategic Asset Realisation on Track to Conclude

Heartland continues to execute its NSA realisation plan successfully, reducing the total NSA value by NZD 35.6 million in the quarter and freeing NZD 5.3 million in capital. The remaining NSA portfolio is expected to shrink to approximately NZD 88 million by the end of FY2026, primarily comprising Home Loans scheduled for run-down and well-managed Rural and Business Receivables.

Geopolitical Risks Temper Optimism

Despite the positive operational results, Heartland remains cautious amid ongoing geopolitical uncertainty in the Gulf region. The bank is actively monitoring potential impacts on customer demand and credit quality across its New Zealand and Australian markets. While no material effects have been observed yet, Heartland is prepared to adjust its geopolitical provisioning overlay as the situation evolves.

This cautious stance follows a period of strong performance, including the group's profit surge and tech upgrades earlier in the financial year, highlighting a balance between growth initiatives and risk management.