Heartland Group Holdings' (ASX:HGH, NZE:HGH) proposed acquisition of New Zealand-based TSB Bank will help cut its exposure to riskier lending types as a proportion of its total credit portfolio, Fitch Ratings said Tuesday.

The ratings agency placed Heartland's BBB long-term issuer default ratings on rating watch positive as it waits for the deal to progress.

Heartland Bank's long-term ratings are driven by its viability rating, which is one notch lower than the implied viability rating of "bbb+" because of the lender's higher exposure to riskier lending compared with domestic peers, Fitch said.

In addition to reducing its overall risk profile, the deal will more than double Heartland Bank's share of New Zealand banking system assets, help strengthen its asset quality, and boost its funding profile given TSB's stronger deposit mix and liquid asset holdings, Fitch said.

However, it added that TSB has a structurally lower earnings profile than Heartland Bank, and "even with synergies we expect the combined bank's earnings to be lower than that of pre-acquisition HBL's through-the-cycle earnings."

Shares of Heartland Group in Australia were nearly 12% higher in recent Tuesday trade. The company's New Zealand-listed shares climbed past 11%.