by Jenny Ruth
"We don't think the risk/return is there long term. We'll leave it to the big banks to slug it out between themselves.”.
Heartland's mortgage book fell by $68 million to $324 million in the year ended June, reflecting both mortgages amortising and customers taking advantage of very sharp interest rates offered by competitors to refinance.
“The mortgage market in New Zealand is very commoditised. By and large, it's no longer a relationship product.”
Instead, the primary driver of mortgage business now is price.
Greenslade says although Heartland will continue to provide mortgages as required, it favours replacing this low margin business with higher value motor vehicle loans which are “inherently high margin and low risk” and tend to perform as well as mortgages.
Greenslade says he expects very low credit growth to continue over the next five years and therefore the focus will be on profit margins. He also expects a lot more switching. “If you want to grow, you're going to have to take customers from someone else.”
While non-residential property is no longer part of Heartland's core business, it still had a $161 million portfolio at June 30, down from $187 million a year earlier.
The company has now fully utilised the $30 million buffer provided by its arrangement with Pyne Gould and will have to take any further losses itself.
Greenslade says the original agreement covered $140m of property loans and the residual assets are between $90m and $100m (there's another $60m inherited from the building societies in the early 2011 merger which are regarded as non-core but which are performing well).
The remaining book is "not entirely pristine" and "has its challenges" but has become a lot more predictable, he says.
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