Not surprising since Heartland don't do any banking functions for themselves. It is all outsourced to Westpac, in which case they should be in the 7 day settlement system?
SNOOPY
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https://www.nzherald.co.nz/business/...PF3N6S4HRDE6M/
Fair points about reverse mortgages ...
Yes interesting as rabobank sent me an email saying they would be doing inwards payments on 7 days but not outwards payments. Both hland and rabo probably can’t be bothered paying someone to go and push the transfer buttons on the weekend lol
Both rabo and hland only offer mon - fri business hours customer support I think.
Given the current discussion re Sharesies, just ignore the fact that this is one of their podcasts - the guy doing the interview is actually from Business Desk.
Quite an interesting podcast - different angle than what we are used to as shareholders, but I found it very helpful, and learned a thing or two I wasn't aware of before.
https://podcasters.spotify.com/pod/show/sharesies/episodes/A-small-bank-in-a-big-bank-world-with-Heartland-Group-e24vis9
Jeff is a good speaker.
I hate to say this again but Heartland's app is truly, truly terrible. Every time I try to do something meaningful with it I discover a new bug. Today I tried to transfer $0.15 out of a Notice Saver account (I wanted to empty out the dregs to tidy up my accounts) and was greeted with the attached error. Utterly ludicrous.
That’s weird. I am one of those annoying people who sometimes transfer small amounts, as I like round numbers :D but I have never seen this message and my transfers have always been accepted.
I just did one now to test it, and it worked fine (1c)
EDIT: oh! You were doing it from a Noticesaver. You can’t transfer from that account without giving the required notice.
Yes that's right. I've given the "notice" prior to the error turning up - the app schedules the payment for one day after the notice period ends, which all makes sense and I have actually done this many times before. But today it gives me this bizarre transfer limit error.
Thanks for the link, very interesting.
My own selected notes from this podcast
Quotes from Jeff
"Fairly early on we made the decision that we wouldn't succeed by being a smaller version of a bigger bank."
"Scale, branch networks and lots of people are things we don't have."
I hate to say it but many of the big banks do not have scale any more. I spend some time in the Kapiti district where I own a half share in a house. In the particular community where I hang out (Waikanae) only Kiwibank and ANZ are left. And the ANZ only has limited hours two days per week. During the strictest lockdowns I had to drive for 30 minutes to get to my own nearest bank branch (Westpac). This was so unsatisfactory, it will necessitate me changing banks after close to 40 years I think (although it must be said I never joined Westpac, it was Trusteebank Canterbury back in the day). Other priorities mean I am only just rolling out my account changes next month. But the Westpac bank network is almost completely gutted. There is only one branch open for full banking hours in the whole of Wellington City now, as an example. Wellington suburbs have largely lost their branches entirely, although Kilbirnie and Johnsonville hang on with very restricted hours for a few days a week. The reason why I mention this in detail, is that Heartland are using Westpac to conduct what were Heartland bank functions on behalf of their clients. And with the Westpac footprint largely gone, Heartland are in effect a fully on-line bank already.
"We made the decision fairly early on to dispatch with our branch network, and to digitalize our business."
Closing of the Heartland branches -on a 3 or 4 billion dollar book of deposits-, saw Heartland lose only $20m of customer deposits in that 'bad week'. It seems a bit odd that Heartland's impact on the decision to close their branches could be measured over just the one week after they announced that decision. But I digress.
Branch closures are fine for some. But not being a fan of digital banking for security reasons, it means I will never open an account with Heartland myself (despite being a shareholder), as I have little confidence in their 'paid back up branch network' over at Westpac.
Talking about product offerings:
"(Heartland decided to) adopt a best or only strategy."
I am fully behind this and approve of Heartland adopting "reverse mortgages (Of the $6.5b total Heartland loan book, about $2b is in reverse mortgages across both Australia ($1.2b) and New Zealand ($0.8b), motor finance (counted as coming under the household sector umbrella) and livestock funding (currently $1.1b of the loan book)" as targeted markets. Furthermore there are $2.3b in 'other business loans' on the books. But motor vehicle financing seems to be motor dealer group initiated (nothing wrong with that although I question if such dealer funding provides a sufficient business case moat) and the livestock funding seems almost a legacy 'wind down' business (PGG Wrightson's new GoLivestock finance arm was created because Heartland farm business loans, which PGG Wrightson used to use, were just taking too long to process). Jeff makes a foot-shot later in the interview when talking about the risks of lending to Small and Medium Enterprise business customers (35% of the Heartland loan book).
"SME is high risk, and every company is slightly different. There is always a nuance that you need and the average loan balances aren't particularly high. There is not enough scale in lending to justify all the associated costs and risks"
Back on the topic of Heartland's niche loan products of interest.
"We sell our customers one product at a time. We don't try to cross sell which allows our team to be totally focussed on what we need to do."
"If we can do something on a mobile phone via an app, it is the best way of doing things."
"The waiting times in bank branches are somewhere between 20 minutes and 40 minutes. Not a great experience."
The above is a self fulfilling prophecy. Provide poor service in a physical branch and suddenly a digital interaction looks better. As Jeff notes, digital interactions are more cost efficient from a bank perspective, which is the real reason for pushing banking services on line.
Moving onto deposits
"Heartland are underweight at the short end of the market, at call and around the 30 day level compared to other banks. The reason being that we don't offer transactional banking services so we don't need that short term money. Nevertheless the short term of the market is the lowest cost of funds, which is why the term rates we do offer can be very rate competitive."
Notwithstanding the above, the higher interest rates that Heartland charge over and above the big banks (because Heartland do not compete hard in the low margin conventional mortgage market) allow them to feed more of that 'loan income' down to depositors, while still retaining a high net interest margin to reflect loan risk.
"Smaller banks tend to have a cost to income ratio of 60 cents in the dollar, whereas Heartland's is 42 cents. This is a similar cost to income ratio that is achieved by larger banks, which we have achieved with technology."
"From the early days of Heartland bank the loan book has expanded by three times, but profitability growth has been five times."
On the move into reverse mortgages, particularly into Australia
"It is much better to buy reverse mortgages rather than start the business up, because interest capitalizes (is added to the loan) and the book (Loan balances) on average pay back (only) after 7 or 8 years."
"From a lenders perspective there is no cash returned for several years, so you need a deep pocket of cash to start the business up." "The Challenger bank acquisition in Australia is to allow Heartland to tap into that vast pool of retail depositors to gradually replace the wholesale funding arrangements that are in place to support the growth of Australian reverse mortgages now."
Current market share in Australia for reverse mortgages is 37% (the largest of any player) but spend is probably 100% of the total Australian sector marketing budget (IOW competitors are small and passive). Loan to value ratios of the reverse mortgage book are currently sitting at 20%. To get a picture of outlier risk, in all of Australia there are currently only two borrowers with a loan to value ratio >75%, and none in New Zealand. Despite the current market being 'the tail end of the baby boomers', the projection is for the market for the growth in the reverse mortgages to continue before levelling off in the late 2030s. The current total market in Australia is about $3.4b. But the potential, with more market awareness, Heartland believes is between $10b to $15b.
The listing of Heartland in Australia is purely to allow Australian institutions who have a mandate to invest only in Australian listed entities to participate in Heartland capital and debt raisings.
SNOOPY