Brand awareness and tech the big issues for merged banks
Technology is going to be the key for the proposed TSB Heartland Bank to become a major challenger of scale with a regional focus.
Wednesday, June 17th 2026, 4:27PM
by Sally Lindsay
Squirrel Mortgages chief executive David Cunningham says it will be interesting to see what technology the combined banks will refresh with.
“The big thing in amalgamating and then pulling the merger of Heartland Bank and TSB together is having modern technology. This is where the most savings can be made but it is often the most time consuming.”
He says both banks don’t appear to have leading technology and it is essential to get traction if the merged organisation wants to become a serious challenger.
A recent report from Accenture shows banks spend 70% of their IT budget just keeping old technology alive.
Accenture’s banking trend report says years of underinvestment have left banks burdened with tech debt and rising costs, while technology costs have grown four times faster than banking revenues over the past 15 years.
The report also found the brittle nature of the sector’s legacy technology limited innovation, but AI tools offered a path to modernisation and lower costs while allowing banks to redirect their time, energy and focus on the development of improved products and services.
Cunningham says technology is going to be the big thing alongside critical mass, distribution and a recognised brand for Heartland TSB.
Heartland Bank found it’s barely recognised brand a stumbling block in the mortgage market. It tried to create its own home loan portfolio in March 2020 with an online and owner-occupier only offering but the launch was stymied by the beginning of the Covid pandemic.
It was relaunched in October of that year but fell over when Heartland realised it wasn’t making the margins it wanted.
“To be successful in the mortgage market you need a distribution and a brand and it never got to be a very well-known brand,” Cunningham says.
Heartland is paying $620 million in a mix of equity, a cash dividend and vendor loan to buy TSB, with TSB’s sole shareholder Toi Foundation to hold a 17.5% shareholding in Heartland on completion, which is expected in December.
TSB Heartland will have the sixth largest mortgage book in New Zealand after Kiwibank's $31.36 billion book.
The RBNZ’s dashboard shows TSB as having $6.53 billion in housing loans at 31 March and Heartland as having $4.18 billion, but most of Heartland’s housing loans are reverse mortgages.
Heartland says the merger will combine its specialist product expertise – in reverse mortgages, motor financing and commercial lending including livestock funding – with TSB’s “cost-effective funding platform and transactional banking capabilities”.
Coming from a competitive perspective, Cunningham says the merger is healthy. Heartland brings access to wholesale funding through its structures as well as its retail book and TSB is strong on retail.
He says TSB’s balance sheet and return on equity isn't really delivering an adequate return for its owner, so a buyout or merger was inevitable sooner or later.
“There has always been logic in smaller banks coming together. Heartland Bank is a bit of a wild card, but it needs scale to compete.”
However, Cunningham says the merger probably won’t make much difference to the nature of the industry. It is hard for small banks to survive with the running and compliance costs that go with it. If a small bank gets compliance wrong they can get hit with a stiff fine. It’s difficult.”
Even after the merger the combined bank will still be less than half the size of Kiwibank – often touted as New Zealand’s only major challenger bank, although it is still a minnow compared to the big four Australia owned banks. Kiwibank has found operating in the existing banking sector sometimes frustrating.
“It’s service is good, its reason for existing is great, but it hasn’t driven down mortgage pricing even though it is like one of the major banks in many ways,” Cunningham says.
The big question, he says is TSB Heartland going to seek to grow aggressively?
A challenger bank he reckons would want to be targeting 20-30% growth on its balance sheet every year.
“To grow at that pace is quite hard without a bit of pricing aggression and it usually takes two to three years before merged banks hit their straps.”
Cunningham says unless TSB Heartland has very aggressive growth plans the merger will make little difference on the bank mortgage sector.
Across the country, banking sector commentators do not think TSB Heartland will mount a strong challenge to Finance Minister Nicola Willis’ description of the four big banks as a “cosy oligopoly”, and will remain a relative minnow as the seventh-largest bank in the country.
Doubts are being raised locally about the merger with one former director of TSB – a Taranaki institution –likening it to selling off the family silver, but Toi Foundation says the deal will give it the scale to strengthen its position over the long term.
| « ANZ CEO to retire |
Special Offers
Comments from our readers
No comments yet
Sign In to add your comment
|
|
Printable version |
|
Email to a friend |
