Heartland Group Holdings Limited (ASX:HGH) Reports $49.6M Impairment Expense
Impairment Expense
Heartland Group Holdings Limited (ASX:HGH) announced an impairment expense of $49.6 million for its New Zealand bank, Heartland Bank Limited, for the six-month period ended 31 December 2024. This marks a significant increase from $23.9 million in 1H2024 and aims to derisk and reposition the bank’s lending portfolios amid deteriorating economic conditions in New Zealand.
Financial Impact
The impairment expense comprises $20.2 million in write-offs, $19.4 million in specific provisions, and $10 million in collective provisions. This will affect Heartland’s net profit after tax (NPAT) for 1H2025, which is expected to range between $2 million and $5 million. Despite the increase in impairment expense, Heartland Bank remains well capitalised with a 14.8% total capital ratio as of 31 December 2024.
Economic Conditions
New Zealand’s economic conditions have significantly worsened in 1H2025, with GDP falling by 1.0% in the September quarter and 1.1% in June 2024. Unemployment has risen to a four-year high of 5.1%, and consumer and business defaults have increased by 39% and 22% year-on-year, respectively. These conditions have impacted the collectability of arrears in Heartland Bank’s portfolios.
Dividend Expectations
While the Board has yet to declare an interim dividend, it expects that the increased impairment expense will not prevent the payment of a dividend. The final decision on the dividend amount will depend on Heartland’s capital needs and financial performance.
Future Outlook
Heartland Bank anticipates that economic challenges will persist into the second half of FY2025, particularly in the forestry, transport, agriculture, and construction sectors. The bank is enhancing its collections and write-off strategies to manage arrears effectively and expects no arrears for certain loan cohorts by June 2026. Additional losses may occur if economic conditions deteriorate further.
Motley Fool contributor Abbie Stokes has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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