Heartland to buy TSB for $620m to create larger challenger bank with a regional focus

The foundation noted that owning and growing a bank was very capital-intensive.

“For every $100 of net profit before tax, Toi Foundation is only able to distribute around $14 after tax and other requirements. This makes it difficult to diversify the portfolio while also meeting our ability to grow the amount we give back to the community,” it said.

Heartland chief executive Andrew Dixson said the scale that would be created by the merger would enhance the bank’s ability to compete and increase its financial resilience.

The merger might also lift Heartland’s BBB credit rating (issued by Fitch).

“By combining Heartland Bank’s specialist product expertise with TSB’s cost-effective funding and everyday banking services, we’ll be able to offer more New Zealanders a better‑value banking alternative,” Dixson said.

“As a larger bank, TSB Heartland Bank will be in a stronger position to keep investing in products and technology, while supporting the delivery of improved financial returns for our shareholders.”

TSB and Heartland are New Zealand’s seventh- and ninth-largest banks respectively, by assets. Once merged, the entity will be the seventh-largest bank, behind the big four Australian-owned banks, Kiwibank and Rabobank.

TSB’s assets are worth $9.5 billion. Heartland’s New Zealand assets are worth $5.6b, and its Australian assets $3.2b. To put these numbers in context, Kiwibank’s assets are worth $43.1b.

TSB, formerly the Taranaki Savings Bank and founded in 1850 as the New Plymouth Savings Bank, has been owned by Toi Foundation since 1988. The foundation also owns 66% of Fisher Funds.

Heartland is listed on the NZX and ASX and provides specialist banking products to New Zealanders and Australians.

Dixson said the merger would enable Heartland to deploy capital more effectively across the group, and “have the scale needed to deliver a stronger cost-to-income ratio through greater operating leverage”.

“Our commitment to specialist products remains unchanged – this will simply be enhanced by full-service capabilities in New Zealand,” Dixson said.

“It is intended that TSB Heartland Bank will retain Heartland Bank’s existing nationwide presence, with Taranaki as a key operational hub for customer-based banking services – including maintaining a local branch network and customer-facing roles in Taranaki.”

The proposed deal is expected to be completed in December, provided it receives the appropriate regulatory and shareholder approvals. Taranaki residents will also be consulted.

“We recognise the importance of TSB to its customers, staff and the wider region, and we are committed to listening carefully to feedback before any final decision is made,” Toi Foundation said.

Jenée Tibshraeny is the Herald’s Wellington business editor, based in the parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.