Heartland Bank, which trades on the NZX as Heartland New Zealand, had its credit rating lifted a notch by Fitch Ratings, after the agency was impressed by its improved asset quality and stronger earnings.

Fitch raised the Christchurch-based lender's long-term issuer default rating to BBB from BBB-minus, its short-term rating to F2 from F3 and its viability rating to bbb from bbb-minus, it said in a statement. Heartland's focus on niche lending markets, as opposed to residential mortgages, meant it generates bigger net interest margins despite a riskier lending profile, and has strengthened its loan book by exiting non-core assets.

"Fitch expects HBL's (Heartland Bank) core asset quality to remain sound, benefiting from strengthened underwriting standards and good economic conditions," Fitch said in its report. "In addition, HBL's capital ratios are adequate relative to its risks."

That's the second credit rating upgrade for Heartland this year after Standard & Poor's lifted its rating to BBB, citing the lender's focus on niche markets with greater profitability.

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Heartland, formed from the merger of the Canterbury and Southern Cross building societies and Marac Finance, this year bought a reverse mortgage business from Seniors Money International for $87 million and took a 10 percent stake in peer-to-peer lender HarMoney as it seeks to accelerate growth.

The lender reported annual profit of $36 million in the year ended June 30, in line with guidance, on a 12 percent increase in revenue to $122.6 million.

The shares were unchanged at $1 yesterday, and have gained 18 percent this year. The stock is rated an average 'hold' based on three analyst recommendations compiled by Reuters, with a median price target of 96 cents.

Fitch also affirmed ratings for five other financial institutions, keeping TSB Bank at A-minus, Southland Building Society at BBB, The Cooperative Bank at BBB-minus, Nelson Building Society to BB+, and Wairarapa Building Society at BB+.