New Zealand's Heartland Bank has stopped offering its own mortgages and will, instead, introduce home-borrowers to Kiwibank, so it can focus on rural, small business and personal lending.The announcement came in Heartland's disclosure of a NZ$17.3 million net profit for the nine months to March 31, up 10.8 per cent on the same period a year ago.Heartland said it no longer wanted to compete against the major banks in mortgage lending. The majors have become increasingly competitive in recent months as they have passed on cheaper overseas wholesale funding costs to customers. Heartland is funded by local term deposits."Heartland will continue to manage its customers' general banking requirements, but those customers can also be introduced to Kiwibank by Heartland for their residential mortgage requirements," Heartland said."The concerns expressed by Standard and Poor's regarding housing prices have served to reinforce the soundness of this strategy," it said. It was referring to S&P's warning in early May that it may cut Heartland's BBB minus credit rating by as much as two notches over the next two years, to a sub-investment grade rating, in part because of the ratings agency's wider fears about New Zealand's inflated house prices.Heartland said the arrangement with Kiwibank had been piloted in some branches since early April and would be rolled out to all branches."This arrangement with Kiwibank, with respect to residential mortgages, allows Heartland to attract new customers while utilising its balance sheet for other core activities in the Business, Rural and Household sectors which currently offer a better risk/return," it said.Heartland had run down its mortgage book to NZ$249.7 million by March 31, from $258.2 million a year earlier. This contrasts with a 4.5 per cent rise in New Zealand-wide mortgage lending by its rivals over the same period.Heartland was in a holding pattern until it was finally granted a bank licence in December last year, after nearly two years of waiting. After its licence was granted, its retail deposit funding rose to $1.76 billion, by March 31, from $1.62 billion in June last year.It said it planned to re-pay bonds maturing in July this year worth $104 million. The bonds, paying 10.5 per cent, were inherited from property and business equipment financier Marac, which was merged with building societies CBS Canterbury and Southern Cross in January 2011, and subsequently merged with rural lender PGG Wrightson Finance in October 2011. Heartland's retail deposit funding now costs around four per cent.Heartland also said it would announce the results of a review of its non-core property assets, also inherited from Marac, in June. It warned that the current plan to exit the property development loans over five years may change, which could "impact" on the full-year results.