Dutch-owned NZ rural lender sees rise in impairment losses cut deep into profit

Rabobank New Zealand booked a big rise in impairment losses in the June quarter as the rural sector continues to struggle with high debt levels.

Rabobank’s General Disclosure Statement for the six months to June shows impairment losses on loans of NZ$35 million.

Although that’s down on the NZ$37.35 million in the same period last year, just NZ$500,000 was recorded in the three months to March, meaning about NZ$35 million came in the June quarter alone.

This meant the bank recorded total comprehensive income after tax of NZ$17.2 million for the six months to June, down from NZ$20.9 million in the three months to March.

The bank’s impaired assets also rose, by NZ$101.3 million to NZ$377.7 million in the six months to June. That represents about 5.4% of the bank’s NZ$6.9 billion total gross loans and advances.

Analysis of Rabobank’s total credit exposures show it has NZ$6.78 billion of its total NZ$7.8 billion in the agriculture, forestry and fishery industries.

There has been concern about rural debt levels for some time. The Reserve Bank confirmed in April it had delayed the implementation of new capital adequacy rules for rural lending by six months until the end of December after banks expressed concerns they could significantly increase lending costs for farmers.

And Real Estate Institute of New Zealand (REINZ) data for August showed the average land price per hectare for all types of farm sales tumbled by two thirds in just a year, with the number of farms sold in August the second lowest for any one month since REINZ began publicly releasing its data in 2003.

From a peak of NZ$90,125 in August 2009, the average price per hectare of all types of farms fell to just NZ$29,739 in August this year. That's a drop of NZ$60,386, or 67%, with just 48 farms sold during August, including just three dairy farms.

Reserve Bank data out yesterday shows total bank lending to the agricultural sector stood at NZ$47.8 billion at the end of August. That's up 1.9% year-on-year and NZ$156 million month-on-month.

Crafar exposure

Rabobank is one of three lenders to the now in receivership Crafar Farms, alongside Westpac and PGG Wrightson Finance. This exposure could be a factor in its increase in impairment losses. A Rabobank spokeswoman declined to comment.

Mark Darrow, PGG Wrightson Finance’s CEO, recently told interest.co.nz that his company’s Crafar exposure was part of the reason for its increase in June year loan impairments to NZ$8.9 million from NZ$2.9 million in the previous year, with an unrealised provision made against the Crafar exposure.

New Zealand's largest family-owned dairy business, the Crafar Farms were placed in receivership last October owing about NZ$216 million to their lenders. Interest.co.nz understands the PGG Wrightson Finance exposure to be about NZ$8.6 million, leaving the balance with Westpac and Rabobank.

Rabobank's agriculture, forestry and fishery exposure presumably includes viticulture, where, according to Deloitte partner Paul Munro who helps oversee an annual survey on the wine sector, Rabobank has a “disproportionate” exposure.

Ben Russell, Rabobank's New Zealand general manager, told interest.co.nz in July that his bank remained fully engaged with, and committed to the wine sector, which it takes a long term view on.

"We will continue to work with clients and assess their needs on an individual basis and endeavour, wherever possible, to support them through difficult times," Russell said.

Marlborough’s 23-hectare Gravitas Vineyard, which is in receivership owing BNZ NZ$4.4 million, was recently passed over at NZ$2 million at a mortgagee sale when a solitary bidder failed to meet the reserve set by the receivers. Another Marlborough vineyard, Otuwhero Estate Wines, was placed in receivership this week.

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