Financial Services

Take two: NZ’s Heartland now acquiring Challenger to become a bank in Australia, Avenue Bank deal dead

Thu 20 Oct 22, 12:51pm (AEST)
A visual representation intending to depict scales balancing a bank loan on one end and a family-sized house on the other; Heartland owns a mortgage business
Source: iStock

Key Points

  • A new small banker is set to enter the Oz finance landscape as NZ’s Heartland Group picks up Challenger Bank for $36m
  • To comply with regulation, Heartland must acquire an authorised deposit-taking institution (ADI) in Australia
  • Heartland is on an expansion tip this year; it acquired rural financer StockCo in April for $143m

Australian and New Zealand dual-lister Heartland Group Holdings (ASX:HGH) is moving ahead with a $36m deal to purchase Challenger Bank Australia from  Challenger Limited (ASX:CGF).

Heartland itself owns a banking operation in New Zealand called Heartland Bank, one of the smaller outfits in the jurisdiction. 

Heartland is on a bit of an acquisition streak in 2022. Earlier this year in April, it acquired rural financer StockCo. Heartland coughed up significantly more for StockCo, to the tune of $143m.

Setting up shop 

For Heartland to become a bank in Australia, which is what it’s trying to do, it must first establish or acquire an authorised deposit-taking institution (ADI) in Australian borders. Challenger Bank is that ADI.

Challenger is Heartland’s second go at this process. In August, it moved to acquire ADI Avenue Bank Limited, another Australian entity, but due diligence ultimately pushed that deal out of the ring. 

The company notes today “the aim is to create a digital bank which, once Heartland assets are transferred to it, will be profitable.” 

Shifting blocks around

Heartland’s acquisition of Challenger is a keystone in its expansion strategy. Should the move go ahead, Heartland’s existing mortgage and livestock businesses will be transferred to sit under Challenger Bank (which Heartland will now own.) 

Worth noting, here, is that whether or not it will get permission to do this remains contingent on a decision from the regulator. 

Heartland notes that at the end of the June quarter, Challenger held: 

  • $288m in deposits 

  • $17m in corporate lending 

  • $89m of retail lending 

Regulatory gymnastics

Heartland will pick up Challenger through a holding company incorporated in Australia, and the company suspects it will use its existing Heartland Australia Holdings Pty Ltd as this vehicle. 

Heartland is currently in conversation with the NZ Central Bank to allow it to use the same vehicle as a holding company for its banking operations in NZ. 

Ultimately, Heartland has three strategic outcomes it publicly voices today regarding its decision to expand into Australia: access to more funding, a potential uplift in margin, and a foothold in the Australian market broadly. 

Heartland Group's three month charts
Heartland Group's three month charts


Written By

Jonathon Davidson

Finance Writer

Jonathon is a journalism graduate and avid market watcher with exposure to governance, NGO and mining environments. He was most recently hired as an oil and gas specialist for a trade publication.

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