Heartland Group Holdings Limited (HGH) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the Heartland Group FY '22 Half Year Results. [Operator Instructions] I would like to turn the conference over now to Mr. Jeff Greenslade. Please go ahead, sir.

Thank you. [Foreign Language] Good morning, and welcome to everybody. Thank you for attending the Heartland Group First Half 2022 results. I'm Jeff Greenslade, the Chief Executive of the group. I'm joined by the Group Chief Financial Officer, Andrew Dixson and the Chief Executive of Heartland Bank, Chris Flood. I will start with a few highlights before handing over to Andrew to go through the financial results in more detail, and then we'll come back to pick up a summary of the Australian performance before handing over to Chris Flood, the Chief Executive of the bank to go through the results -- business results within the bank, and then I'll finish with some closing remarks at the end and be able to say questions. So starting at Page 4 of the presentation. Wheel of fortune and this is a good wheel of fortune. You see our result $47.5 million of NPAT, an increase of 7.8% from the previous half year, which equates to an underlying sense to a increase of 8.8%. So very pleasing result driven by quite strong balance sheet growth. We saw in annualized stands 13.9% growth in financial receivables, up $240 million to end just shy of $5.4 billion. So that was very pleasing in its own right, but also particularly because all the key qualitative metrics performed well. NIM was up, CTI was down. And despite appearances, and came into an up but actually they normalized since they were down, and I'll explain that now more fully in a moment. So these combined to see the continuation of our steady increase in ROE up to 12.2% and an increase in earnings per share. So a very pleasing result. Chris will cover this in more detail. We did see the beginning of this year some flagging in the momentum with the advent of the CCCFA, and he will explain that in more detail how that impacts on both the residential mortgages. But despite that, we're still seeing a good growth coming through for the remainder of the year. Turning now to Page 5, just some strategic highlights. As outlined, the financially and in a business sense a very positive result, but it also reflects some very strong improvements and progress in terms of strategic indicators. In particular, digitization as reflected in our cost-to-income ratio, even though underlying costs went up by a small amount due to our investment in IT, in particular, our cost-to-income ratio declined quite significantly. And that really reflects the benefits of digitalization, being able to get down the cost of onboarding and servicing customers, developing scale through technology is showing results. Secondly, NIM indicated once again the strategic strength we have in terms of our market position based on our list of earning products, and that was further endorsed by a number of awards, which I'd like to highlight in Australia, the Reverse Mortgages in New Zealand for Reverse Mortgages. And also in New Zealand, the Canstar Award for the fourth year in a row of being the best savings bank in New Zealand. And considering that in that market in deposits, we square off against all the banks in New Zealand, that is particularly an impressive result when we're very proud of. In terms of our social responsibilities, we are continuing to work on our sustainability strategy. Probably the highlight in the last year was the transition of our fleet from -- towards hybrid cars. We also obtained the Rainbow Tick during the course of the year. That was particularly pleasing, one of long hard work went into that. So that was a great highlight for us during the year. And we are about to complete our fifth Manawa Ako internship, and we had 25 Maori and Pasifika youth in for a short period of time before we had to turn the internship program into a virtual internship program, which was a great challenge which we rose to and it was very successful. So that's also very pleasing for us. As I said earlier, I just explained the impairments that always not would have seen. So we had an increase in impairments versus the previous half, but at 31 basis points -- sorry, 33 basis points, that reflects a more normalized level of impairments and indeed historically is very much below what we've been in the past. The very low rate reported in the corresponding period in 2021 of 19 basis points reflected our response to COVID, where through the government facilities or through our own Heartland Extend product, we allowed customers that were struggling to extend their facilities. And obviously, that clearly has worked given that it has not, if you like, getting down the road and flowed through to this year's results. We're seeing this year's -- this half's results reflecting a normalized business as usual result at the low end. And just further on COVID. As you can see, we haven't seen a material impact in terms of the overall results coming from COVID. Obviously, we covered the Auckland lockdown period. What we're seeing, as we mentioned last time, the same sort of behavioral phenomenons resulting from lockdowns that we see activities declined mainly due to the inability to access things like motor vehicles and assets to finance. But we have that ongoing underlying momentum with Reverse Mortgages continuing. And then once lockdowns are eased, we see that surge of activity. So net-net, we're seeing the same results that we would have seen in a year if the lockdowns haven't happened other than we have the sort of surges of activity. The provision that we took some time ago of $9.6 million remains. We have still decided to keep it. Obviously, there's always seems to be something on the horizon and when it comes to COVID. So at the moment, exercising caution, we've decided to retain that provision. So I will pause there and hand over to Andrew Dixson, who will pick up the financial results from Page 8.

Thank you, Jeff, and Good morning, everyone. So I'm on Slide 8, which bridges net profit after tax from the first half of the financial year 2021 for the first half of financial year 2022. And apologies, a slightly busy slide, but we've included this on both the reported and an underlying basis with the underlying result removing of runoff items in each financial period, and I'll talk to those as I run through the components. So firstly, net profit after tax on a reported basis was $47.5 million for the half, which is an increase of $3.4 million, up 7.8% on the prior period. And on an underlying basis, net profit after tax was $47.1 million for the half, which is an increase of $3.8 million, and that's 8.8% higher than the prior period. So stepping through the components. Firstly, net interest income. This was up $10.7 million, which is a 9.4% increase. And the reported number there was $123.9 million. This was driven by a 3 basis point increase in net interest margin, which expanded slightly to 4.3% as well as a $460 million higher average interest earning asset balance, $512 million higher average receivables, partly offset by a $51 million lower average liquid assets. As we will cover on the subsequent slide, receivables grew $351 million from 30 June 2020 -- 2021, sorry, which was a 13.9% annualized growth rate in the first half of the financial year, noting that excludes the impact of foreign currency exchange. The 3 basis point increase in net interest margin was impacted by the continued low interest rate environment, which was prevalent for much of the period and then impacted on both sides of the balance sheet. So we saw a 60 basis point decline in the yield on average interest earning assets, and that was offset by a 73 basis point decline in the cost of average interest-bearing liabilities. The decline in asset yield was driven by a few factors. Firstly, yields continue to contract across all portfolios with lower new origination yields replacing higher-yielding back book as it repaid. Also, the composition of the receivables portfolio continue to tilt towards high-quality assets with receivables growth as we'll see on the subsequent slide occurring in the lower-yielding portfolios, such as Reverse Mortgages and Home Loans, whereas the high-yielding portfolio such as personal loans, Harmoney and Open for Business continue to contract. And we're expecting this dynamic to continue through the second half of this financial year. The composition of the liquid asset portfolio was also weighted more towards lower-yielding cash and primary liquid assets on average with the preference to maintain a higher undrawn committed liquidity balance given the relative absent supplier yield investment opportunities through the period. The decline in cost of funds was driven by several factors. Firstly, an 89 basis point reduction in the average cost of deposits, which was driven primarily by the continuation of lower rate deposits replacing higher rate maturities and all both core and term deposit rates in the market were at historic lows for much of the period and the duration of our deposit book shortened as a consequence. And there was also a 23 basis point reduction in the average cost of other borrowings, which was driven primarily by lower cost of wholesale funding in New Zealand. In terms of other operating income, on a reported basis, it was $6.8 million, which looks like it was down $5.3 million for the half, but that was impacted by some one-off items, particularly in the prior period, where we had one-off gains of $5.2 million related to fair value gain on the Harmoney equity investment. In the current period, one-off net fair value losses totaled $0.1 million, so much lower and that consisted of a small uplift in the Harmoney equity investment again from some shares that were acquired early in the half, offset by a $0.3 million fair value loss on other equity investments. When you take all of those into consideration, underlying other operating income was $6.9 million, which was flat half-on-half and represents 2 things: one, an increase in originations fee income that was offset largely by reduced insurance underwriting income as the MARAC insurance policies continue to run off. And in terms of operating expenses, reported operating expenses were $57.3 million, which was a decrease of $3.8 million on the first half of 2021. And this was impacted again by some one-off items. In the prior period, one-off expenses of $6.1 million were incurred, which just rattling through those very quickly, we had $4.3 million of voluntarily accelerated amortization. On software assets, we had $1.7 million of legacy suspense account provisioning and write-offs and, $0.1 million of nonrecurring staff expenses. In the current period, more straightforward, we had one-off expenses of $0.9 million, and they're related to nonrecurring staff expenses. So if we take all of those items into consideration, underlying operating expenses were $56.4 million, which was up $1.4 million or 2.5% on the prior comparative period. This was primarily due to a $1.9 million increase in IT and communication expenses, which was driven by software amortization and licensing costs as a result of our continued investment in technology and digital capability. And this was partly offset by a $0.7 million lower staff expenses due to lower FTE. As previously flagged and indicated in our subsequent key performance measures, Heartland's cost-to-income ratio has continued its downward trajectory, decreasing to 43.8% compared to the first half of 2021. And on an underlying basis, that cost-to-income ratio decreased 2.7 percentage points to 43.1%. Finally on impairment. So impairment expense was $8.5 million, which is an increase of $4 million on the prior period. And as Jeff has covered, this reflects, on one hand, the benefit of the COVID-related extension activity that occurred in the first half of 2021, including BFGS ID loans, our own Extend product and similar, while on the other hand, a return to higher levels of asset growth and associated provisioning in the second half of -- on the first half, I should say, of 2022. The impairment ratio of 33 basis points in the case of those extensions was successful in holding our borrowers' time to remediate. And this ratio is reflective of a return to a more business-as-usual state. And as Jeff has noted, this continues to trend below where we were pre-COVID. Just to reiterate, the $9.6 million COVID overlay taken in the prior financial year has not been utilized and remains in full at this stage given the continuation of COVID in Australasia and the uncertainty in terms of economic impact that brings. Turning to Slide 9. So growth in receivables. Chris will cover this in more detail later in the divisional summary section, but it's fair to say despite continued COVID disruption and some legislative headwinds, a very pleasing strong period of growth saw receivables increased by $351 million, which is an annualized growth rate of 13.9%. Both Reverse Mortgage portfolio has produced double-digit growth, with Australia recording $65 million of growth which is an annualized growth rate of 12.1% and New Zealand recorded a record $47 million of growth at an annualized growth rate of 15.6%. These results were fueled by increased new origination as well as a lower repayment experience than that of the prior period. Asset Finance continued its strong growth, increasing $36 million in the period, which is an annualized growth rate of 12.4%. Wholesale Lending also recorded annualized growth rate of 13.7%, which was driven by new lending to Go Car and the expansion of wholesale motor dealer groups. Motor also recorded a very respectable 8.8% growth with that result softened late in the half by CCCFA impacts, which again Chris will cover later in the presentation. The runoff of the Harmoney portfolios continued in Personal Lending, which saw that portfolio retract. And then finally, Home Loans grew $163 million for the half, which is up $121 million on the second half of 2021's growth. Turning to Slide 10, key performance measures. So again, everything is trending well. NIM remained strong with a stable -- within a stable band, having expanded 3 basis points on the first half of 2021 to 4.3%. While excluding the impact of liquid assets, NIM was 4.63%. As also covered on both a reported and underlying basis, the cost-to-income ratio has continued its downward trajectory with the underlying cost-to-income ratio continuously decreasing over the last 3 half year periods from 45.9% to 43.1%. Nonperforming loans and impaired asset expense ratio have returned, as we've said to more normal levels after historic lows in the first half of 2021 with the previously noted remediation efforts. Moving to Slide 11, shareholder return. So everything is again trending in the right direction with a return on equity at 12.2%, an increase of 7 basis points. Earnings per share of $0.081 per share, which is up $0.005 per share on the prior half, and it reflects EPS growth of 6.6%. And finally, pleasingly, a fully imputed interim dividend of $0.055 per share has been declared, which delivers an increased dividend yield of 7.4%. I'll now hand back to Jeff and then Chris, who will cover the divisionals. Thank you.

Thank you, Andrew. So that takes us to Slide 13. It just sets out initially the Reverse Mortgages portfolio. Just a few things I'd like to draw your attention to. Firstly, the low LVRs in both countries reflecting very similar customer behaviors in each country, which -- it's just important to note, given the outlook in both countries is for a property correction or a downturn that we're very well positioned in a very robust position indeed in terms of any downturn in those real estate markets. And the second thing, I just would like to draw your attention to is, as you can see, the strong growth we're getting in both markets both in terms of annualized growth half-on-half, but also the compound growth rates that are going back to 2017. So they are both -- yes, in great positions in both markets in terms of underlying growth and growth, which is also very counter [indiscernible]. Turning now to Australia, specifically on Slide 14. As Andrew pointed out, very strong growth there. We took the opportunity also on segmenting our market in Australia. It's a market which is obviously bigger and our book is bigger. We have more data. We have more years of experience. And what we are seeing is the potential for the market to be segmented into the typical borrowers that we have that will take up the mortgage in the early '70s and then a younger market, which is if you like the ton of [ voter ] customers in their 60 to 70 bracket. So we launched a new product called Express targeting that market, in particular, and the pipeline for that is -- the interest in that has been very strong. But also, we're seeing no abatement of growth coming out of the regular product as we've launched that. We have been advertising quite vigorously in Australia, and I think that is also contributing to those good results as well. In Australia, we had very strong closing growth in the last months of the half most continued on through, so making up for some of the growth that was slowed down during the lockdowns, particularly in Melbourne. So very pleasing results in terms of Australian Reverse Mortgages. All right. I'll now hand over to Chris Flood, who will pick up the rest of the divisional overviews.

Thanks, Jeff, and good morning, everyone. I'm on Page 15, New Zealand Reverse Mortgages. When we purchased this business in 2014, we did say with expectation that baby boomers that are into retirement would contribute significantly to growth. And we are seeing that now. We've supported that with a dedicated team to only do Reverse Mortgages and the service proposition that we provide as a consequence is very good. And over recent times, we have increased advertising and we note the product has been discussed more broadly in the community. That covered with the favorable conditions that we're experiencing. So house price inflation and comparatively low interest rates has underpinned the growth that we've seen in really -- that growth rate is [ exceptional ] for the business. Pleasingly though, our pipeline, if I look at our pipeline as at the end of last month, that is 3x greater than it was this time last year. So not only we had a good result, our expectation is for the year that finished strongly and continued growth with these rates. Turning now to Page 16 and Open for Business. And not a lot really -- not a lot different from last year really. Small business continues to take a cautious approach to increasing debt. And clearly, we take a cautious approach to the sector. Ahead of Omicron, we were starting to see some green shoots of [ our ] growth as people were inquiring more for business and we're able to approve more loans. However, we do expect that to flatten during the Omicron outbreak. And -- but we remain well positioned to lean back into the sector as SMEs regather businesses. Turning now towards the finance on Page 17. And again, this was a another strong performance for the bank and benefited really from a couple of factors. The underlying performance of the economy remained robust during the half. And within that, the transport sector was particularly strong. Heartland positioned itself well ahead of the pandemic through relationships with distributors and dealerships and that placed us actual near point of sale at a critical time. And clearly, we've benefited from that with those distributor and dealership relationships. We expect a strong second half. We have strong pipelines, and we're seeing that there is -- while there is some supply constraint delays in business, as Jeff referenced earlier, the underlying approvals of the year and the business is settling when the assets become available. Turning now to Page 18 and Wholesale Lending. Previously, this area was discussed as business relationship. And at the full year, I signaled and in fact, for some time, we've been signaling that we would -- we were targeting a rundown of those larger relationships to business borrowers where we provide multiple loans to one customer. And that was a decision taken a number of years ago to derisk the business, and that has continued in the first half of this financial year. Also second last year, we expected to grow receivables in the business unit. And clearly, that's been achieved in the first half, which has come on the back of Wholesale Lending. So that is in a Heartland context, loans to dealerships or distributors you sell assets that we like to finance like on the vehicles or trucks or tractors. So -- and that clearly contributes strongly to our motor division and our Asset Financing division. So in effective inventory financing. More recently, we have also linked to other finance businesses in that sector who operate in slightly different markets to us. So leading into finance companies that understand market -- into markets we understand well and have to acknowledge them. We expect continued growth in the sector. And in fact, one of the drags on the half has been against supply constraints. So what tends to happen is ships arrive full of stock and they are presold. So rather than sit around on dealership yards, they turn into loans on our Asset Finance or remote book group quickly. Turning now to Motor Finance. And notwithstanding the lockdowns that we had to experience in the North Island in the half, we achieved another strong result, helped in part by strong motor vehicle sales, and we also benefited from market share gains in both the franchise and used car markets. With CCCFA hasn't ended in motor lending in December end of January end, while we're seeing some recovery in February, we note -- in both the 2 previous months, car sales volumes were down. We look forward to the ministerial review that's currently underway. We had participated in it, and we do expect some clarity, which we think will mean we'll have a strong finish to the year, albeit the third quarter will be softer than that we were experiencing in the first half. We have -- we will also benefit from some additional relationships with distributors that we have developed and we'll be looking to roll out in the last quarter. Turning now to Personal Lending on Page 20. Again, we've maintained a cautious approach towards largely unsecured lending. And we remain well positioned to benefit from the net market returns. But at this stage, our expectation is for it to run down during the second half of the financial year. On Page 21, and our Rural here division, there is a little bit to unpack here. So we've got a couple of factors going on, so a flat result. But what we have seen is a continuation of those larger relationship loans continue to run off. We've talked about that for a number of years now. And that's been replaced with the Sheep & Beef initiative we discussed last year. That's performed very strongly in the half. It maintains a strong pipeline, and we have great expectations for future growth from that business in the second half and beyond. Also, December, of course, is the lowest -- low point in the Livestock season. So that runs off in the months from -- into December and picks up in the second half. So on the back of that, we expect a strong finish to the year. Sheep & Beef will continue on. Livestock will return, and we've recently launched a dairy direct equivalent of Sheep & Beef and we have some high expectations for growth rates at similar levels to that achieved in Sheep & Beef. Lastly, on Page 22. Home Loans. It's clearly been a big growth engine for the bank and we have benefited from some acquisition advantages. It is an online-only strategy. It's a huge market with a lot of refinancing happening every month, and we benefit from targeting low LDR and high income to debt ratio customers, and use best industry service proposition and some of the best rates going around. So while the CCCFA has also had an impact on this corner again on this sector, again, the ministerial review that's underway I think will provide some clarity. We have changed some processes to remediate some of the softness we've seen in December and January. And again, we expect a softer third quarter, but a strong finish to the year. And back to you, Jeff.

Thank you. And Andrew, if you could pick up the funding liquidity and capital pages, then I will take it from there.

Yes, absolutely. So moving to Slide 23. So in terms of New Zealand on the bank's funding, the bank increased borrowings by $236.4 million with the receivables growth being funded relatively evenly between deposits and wholesale funding through the period. So deposit funding grew $117 million, and that was driven largely by the successful launch of a new product being Heartland 32-day Notice Saver. Term deposit retention also remained strong during the period. Other borrowings increased $119.5 million, and that was primarily due to $126.6 million increase in securitization funding. This was a result of high utilization following an increase in the bank's committed auto warehouse facility from $300 million to $400 million, which occurred in September of 2021. As we previously discussed, Heartland Bank decreased its total liquidity by $36.3 million, reflecting a return toward pre-COVID levels while regulatory liquidity ratios remain well in excess of the regulatory minimum. In Australia, Australia continues to hold solid headroom in its Reverse Mortgage facilities and also issued an additional $45 million of medium-term notes in July of 2021. Given the anticipated growth profile of the business alongside the recently launched new products, both of Heartland Australia's Reverse Mortgage funding warehouses are in the process of being expanded and that includes the introduction of a new [indiscernible] funder. We are also in the process of extending both facilities' maturity dates. Moving to Slide 24, in terms of capital. So group capital remains strong, which at 13% of total assets. Heartland Bank's capital position progressively increased during the first half of the financial year, reflecting a strong profitability, providing excess capital over that, which has been consumed by asset growth and particularly with a significant amount of that asset growth coming from low consumption portfolios being Home Loans and Reverse Mortgages. So as a result, Heartland Bank's regulatory capital ratio was just below 14% as at 31 December, which is an increase from 13.88% as at June. This provides the bank a strong platform for continued growth as well as meeting the Reserve Bank's future high capital requirements, which require a common equity Tier 1 ratio of 11.5% and a total capital ratio of 16% by 1 July, 2028. I'll hand back to Jeff for a strategic update.

Thank you. And just before I do, just touch on the regulatory update. We have covered the CCCFA, which has been, I guess, the regulatory event that's caused most activity. There's also the Deposit Takers Act coming in, which is a form of deposit insurance that will -- is in the process of being introduced. So turning firstly to our strategic objectives, just to reinforce the message, our strategy based around digital only products delivered via scalable digital platforms continues and the results of that in terms of balance sheet growth, in terms of the qualitative measures around NIM and CTI cost-to-income ratio is continuing to be demonstrated. We are constantly working in terms of delivering that frictionless service. There is no finish line when it comes to that service proposition and the pathway is through digitalization and automation. So you will see continued investment in those areas. We particularly focused on Australia. We see opportunities to expand in Australia, and there's a lot of activity going on at the moment in terms of where we can expand. Looking forward, obviously, the impact that we've reported today what was ahead of where we expected to be on the basis of that stronger-than-anticipated asset growth. For the reasons that Chris highlighted, we may see the run rate moderate slightly due to the CCCFA, which impacted late in December, January. But we remain cautiously optimistic that the ministerial review will bring about the appropriate changes, and we'll start to see a return to more normal levels of growth in motor and in residential mortgages. But underneath that, as I mentioned earlier, we're seeing strong growth in those areas of Asset Finance and in particular, Reverse Mortgages. As part of that underlying growth, we're seeing very strong growth in our online Home Loans, the continuation of growth in Reverse Mortgages. That is creating a shift in terms of the portfolio reflected in the net interest margin contracting because of the lower margin products, the growth outstripping those of higher-margin businesses. So that does not concern us. We see that as a positive. Also remembering that those products like Home Loans and Reverse Mortgages attract less capital. So there is a good [ protocol ] and they also -- they generate a lot of them with some impairments. So we're very comfortable with that shift happening. But most particularly, we're very focused on the cost-to-income ratio. We will continue to invest in IT. So we may see costs increasing, but the key measure of success in terms of our strategy and the financial performance is continued reduction in the cost-to-income ratio as we see that as being a major point of differentiation as we're able to onboard and service our customers at a lower cost than the rest of the market. So finally, just confirming the guidance that was given of $93 million to $96 million remains in place. And also just to repeat what Andrew said, we're very delighted to announce interim dividend of $0.055 per share. Thank you very much. That completes the formal part of the presentation, and we're happy now to take questions.

[Operator Instructions] We'll now take a question from Wade Gardiner.

I've got a few questions here. First up, just on Slide 24, you talked about increase in capital kicking it off in July this year. First of all, why would you necessarily kick it off this year, given that you are already sitting sort of well above that 10.5% minimum? And if you are going to do it sort of progressively over 7 years, can you sort of put a dollar number on what you think that would be and how you will raise that capital?

Andrew, do you like to cover that one?

Yes, I'll take that. So that starting from 1st of July, that just refers to the new rules commencing from there. That doesn't mean that we will start increasing from that point because, as you say, we're already well above that level.

Okay. And what about in terms of dollar value and how you'd raise it? I assume the DRP is in place, isn't it?

Yes, it is at the group level. So there's a few things that -- it will obviously depend on the portfolio mix. So different portfolios consume different amounts of capital. We don't have any Tier 1 or additional Tier 1 or Tier 2 capital. So that's always an option. And then we have options at the top group level, either external capital raising or raising debts and passing that down. So the capitals fall in terms of options.

The right summary [indiscernible] that seeing with a lot of options get there. And obviously, as Andrew highlighted, what we need to raise and when we need to raise is dictated by the nature of the portfolio, how much we grow and what areas we're growing.

Yes. Okay. In the commentary, you talked about potential acquisitions in Australia. Can you give a bit more color on that?

Nothing at this stage. It is something that we are constantly focused on in terms of areas where we have some familiarity already. So it's probably, I guess, the key takeout is Australia is probably occupying more of our time in that sort of strategic aspect than say, New Zealanders.

We're not talking Reverse Mortgages here. We're talking other lines?

No. It's not confined to Reverse Mortgages. But certainly, obviously, anything which comes with Reverse Mortgages would be of interest to us. There are 2 major portfolios that we are aware of, which Westpac and CBA hold. But as far as where we are, they're not for sale. But we are looking in a raft of areas, which suit our current expertise and fit within that best or only strategy where we can do what we can to New Zealand carve our positions based on the nature of the product or how we deliver that product to create a point of differentiation.

Okay. In the commentary or in the presentation, you also talked about sort of the benefit that the Reverse Mortgages it got from a strong property market and low interest rates. Do you think that that's going to provide a headwind that it will start to go the other way?

No, it appears, for example, in -- and this is just anecdotal. There's no scientific evidence to back this up. But there are strong anecdotal evidence to suggest that when property prices are going up, our repayments go up with that. And I guess the inference we take from that is that people are deciding to exit their house earlier because they feel like they've got their price that they never expected they would get. So -- since we've seen a moderation of property price growth in, say, Auckland, Melbourne and Sydney, we have seen a tailing off of repayments, but it's very, very early days to as you draw any definitive conclusions. But the underlying question is, no, we expect to see growth continue through the property market cycle.

Okay. Well, I've got you. In terms of your business lines, so you have much of exposure to hospitality, given that it's a bit of a difficult sector at the moment, and we're seeing a lot of closures.

Yes. Wade, we have very little exposure to that part of the market. So and its -- anything it would have been it was in our Reverse Mortgage -- sorry, in their open for business area, so it's relatively modest. And so in clearly, we've taken a cautious approach to that over the last few years.

Okay. And lastly for me, just thoughts on your funding mix as interest rates go up. Does that change things or not?

What we do is we tend to use the wholesale markets for backup liquidity with some exceptions. So we securitized motor, and we have a wholesale funding facility for some of our Reverse Mortgage in Australia, which has been securitized. And obviously, in Australia, we are funded by bank lines in terms of the book there. So our exposure to wholesale lines is either Australia or it's more backup liquidity here. So we are largely in terms of the New Zealand Bank funding off the deposit yield curve. We target like everybody, the shorter end. Everybody is sort of in that sort of funding short path. It's hard to attract depositors beyond 12, 18 months, everybody investment appetite seems to be short term and obviously, there's success to abide in the current environment. So that's where we see our funding base. And obviously, what we manage is, if you like, the jaws between the yield that we are borrowing it and then the yield at which we're lending. So if rates move up, then the jaws moves up with it.

[Operator Instructions] And we'll now take a question from Grant Lowe.

So just looking at the CCCFA a little bit through that. You've outlined some of the key points there. But just in terms of -- you called out the implication rates for the Home Loan business have been very strong from in terms of last year. In terms of how do we think about the approval rates at the moment? Are they -- what can you say about how they compare and also around, obviously, approvals take longer. Is it more of a pushing out? Or is it more of a sort of a rejection dynamic that's going on?

Yes, 2 factors in play. Yes, the sequential rate has gone up. And it's gone up across the industry. And so -- and as a consequence, that has impacted on volumes. But we're also -- it's also taking long to assess and that's -- there's been a lot of immediate comment around that. The interrogation that you have to acquire to bank accounts is -- it takes longer than the previous processes we employed. And we will, in a mortgage sense, modify our digital-only strategy to accommodate that and just putting that solution in place this week. So we're hopeful that we'll actually get a reprieve from the amount of work that we're having to do and minimize the decline rates that we're getting.

So that sort of relates to my next question as well, which will come to the second. In terms of -- does that require sort of further investment in systems and processes? Like at the moment, it's a digital-only product, which you apply online and probably light touch. What are you sort of getting at there? Are you talking about additional -- you have people to review from a process side or are you talking about additional systems?

So what we're doing is integrating our motor capability to support our Home Loan capability, previously, that was separate. And so integration of that means that we can process those applications through utilizing motor resources that have been previously dedicated to motor. And it's fair to say a couple of things. With the automation that we've got and with CCCFA, we can say no very quickly. So it's not the nose that are causing us the problems. It's trying to get giving you some -- so we're chasing warm customers in order to convert them into an onboarded customer. And the other thing, Chris, in terms of time impacts?

Yes, so if you look at a traditional position, so pre-COVID CFA, we can just say a promoter loan and anywhere between sort of 2 minutes for our very good customers, but on average, 20 minutes for our customer. It's now taken because the interrogation required the bank statements and a motor context is taken on average, that's 2 hours to prove those lines.

So we're talking minutes and hours, not days.

Yes. No, I understand that. Just in terms of the -- you called out in the announcement that the Home Loans partnership with a broker [ firm ] in front of me. How should we think about the economics of that? Previously, obviously, this was the dual only. Is this a separate product or related product? Or is this a junk to the existing products? And how should we think about those economics?

For the economics really don't change from a Heartland perspective. What it is, is we are [ trialing ] and originating through brokers. So the rates that they charge will be slightly different to the rates that we charge, but still in a product context best of breed.

Got it. Got it. Okay. In terms of the net interest margins, I appreciate the dynamics going on with the various portfolios and the like, but sort of putting those mix changes to one side. Do you see any sort of pressure on then at the market, I guess, something like to giving a competition strictly. And the Australian Reverse Mortgages are potentially elsewhere.

I talked about the Australian Reverse Mortgages. We are seeing a little bit of competition coming in through some small players that are currently pricing below us. We're not substantially below us. But to give you an idea of the impact, we're still growing market share as a result. So we're not seeing it eroding our position. It's something that we keep a watchful eye on. And the new express product is a lower-margin product, but it is also a lot of the onboarding has done online. So it's a lower cost product as well. So that's how we tend to respond if we can, is through reducing our onboarding and servicing costs, not necessarily pulling the price lever straight away in the face of competition. In terms of Motor, Chris, here in New Zealand?

Yes, there will be a mix change in the -- within the Motor area. So what we are seeing is higher approval rates and drawdown rates from loans originated of franchise dealers, typically money linked to home owners. And so they attract a lower interest rate. And we are finding the decline rates in the used car end of the market are high. And as a consequence, not quite as much business as we were in that. Given the legislation that was introduced was really to target [indiscernible] did not -- not what -- not bank lending into the consumer sector. We're hopeful the ministerial review will remediate that. And so my view is that, that will be a third quarter matter, but it should remediate itself in terms of the fourth quarter. So to summarize here, you are seeing some signs of, say, competition coming into Australia, which may result in that contraction of the margins, the reasons I've mentioned and we have reduced our rates a little bit ahead of reduction in funding rates as a consequence. But that has been so far offset by volume and also other time, we did offset that through reducing our cost of onboarding and servicing.

At this point, there are no more questions. I will now pass the line back to Jeff for a closing statement.

Thank you very much for your participation today. We are delighted to have presented this result and also thank you for your support. Obviously, we remain available for further commentary and questioning during the course of the week, if you should so choose. But thank you very much.

Once again, that does conclude today's conference. We thank you all for your participation. You may now disconnect.