Farmers' lobby group Federated Farmers is calling for an independent inquiry into rural banking, saying farmers and rural communities deserve assurances their banks are operating in a fair and proper way.
The Commerce Commission is currently undertaking a market study into competition for personal banking services. However, this doesn't include rural or business banking.
"Farmers are doing it tough right now with rising costs, bad weather and falling payouts. The last thing they want to be worrying about is whether they’re getting a fair deal from their bank," says Federated Farmers Domestic Commerce and Competition spokesperson Richard McIntyre.
"Farmers and rural communities deserve to have the same assurances that their banking systems are operating in a fair and proper way, so Federated Farmers are calling for the Government to support an independent inquiry into rural banking."
Federated Farmers says it wants whoever forms the Government after the October 14 election to commission an independent inquiry into rural banking.
More farmers cite 'undue pressure' from banks
McIntyre says Federated Farmers' latest Banking Survey, done in May, featured a noticeable increase in the number of farmers who felt they'd come under undue pressure from their bank. This was up to 24% in May from 17% in November last year, the highest level since the survey began in 2015.
The survey also highlighted farmers' interest rates had increased sharply, with an average interest rate of 7.84% in May this year versus a low of 3.79% in May 2021. Their average overdraft interest rate was 10.07% in May this year versus a low of 6.28% in November 2021.
"Those numbers will only have increased since May as interest rates have continued to climb, economic conditions have quickly deteriorated, and many farmers have rolled off their fixed rates," says McIntyre.
"Kiwi farmers are currently carrying around $63 billion of debt, so a 4% increase in interest rates means there will be $2.5 billion fewer dollars circulating in our rural economy."
New Zealand's key rural lenders are ANZ, BNZ, Rabobank, ASB and Westpac. As of June 30, ANZ had total agriculture loans of $15.1 billion, BNZ $13.3 billion, Rabobank $12.9 billion, ASB $10.5 billion, and Westpac $9 billion. Next is Heartland Bank with $700 million.
McIntyre says farmers notice banks charge much higher interest rates for farm lending than home loans, and want to know "if higher interest rates for farmers are increasing banks' profitability or cross-subsidising a much more competitive market for home loans."
Banks' regulatory capital requirements are higher for rural lending than residential mortgage lending, a key factor in loan pricing and lending appetite. Rural loan pricing isn't as transparent as banks' mortgage rates. For rural lending banks publish a base rate and charge borrowers a margin on top of this designed to cover their risk and earn them a return on capital.
There are also discrepancies between the amount of capital the big four - ANZ, ASB, BNZ and Westpac are able to hold and other, smaller NZ owned banks. Kiwibank has no plans to enter the rural lending market and SBS Bank has been winding-down its rural lending portfolio, saying it can't get the return on capital the big four banks get, and it's not big enough to offer enough scale and expertise. SBS's former CEO Shaun Drylie told interest.co.nz in 2021 that the big four could be holding half the capital against agriculture lending as SBS due to favourable capital rules.
The RBNZ is phasing in new bank capital requirements that will help even the playing field between the big banks and the rest, but over several years, taking final shape in 2028.
Net-zero concerns
Meanwhile, McIntyre says an inquiry into rural banking could also look at branch closures and new bank environmental requirements.
He notes NZ banks' membership of the Net-Zero Banking Alliance (NZBA), either directly in BNZ's case, or via their parent groups in the case of ANZ, ASB, Rabobank and Westpac. The NZBA is industry-led, United Nations convened group of banks aiming to transition their lending and investment portfolios to net-zero emissions by 2050. (See more on the NZBA here and here).
McIntyre questions whether NZ banks' participation in such sustainability initiatives are reducing competition in agricultural banking.
Under the NZBA, banks have 2030 targets for reducing the level of emissions associated with lending. The agriculture sector contributes half NZ's emissions, according to the Ministry for the Environment's greenhouse gas inventory.
"This banking alliance raises some very serious questions about whether our banks are acting in a truly competitive manner, or if the joint commitment is effectively banks collaborating on a joint lending strategy," McIntyre says.
"Individual companies are free to put in place whatever requirements they like, but we have a real issue when the main competitors are collectively setting requirements that leave farmers without choices. There is potential for the Commerce Commission to consider what pre-competitive commitments banks in New Zealand can make before consumers rights to a competitive market place are compromised," McIntyre says.
16 Comments
Risk - house vs farm - not hard to work out. A recent article on this site showed how many rural loans are interest only. Can't pay principal. It's business and the risk is costed and when you struggle to repay any debt is it any wonder banks charge more. I know talking to many top bank officials they only bank a lot of farming as they have to. They would happily walk away for the risk and stress involved. Deeper problems here but never talked about.
If the banks are worried about the risk from farm debt, perhaps they shouldn't have been so quick to 'lend out' as many dollars per hectare initially.
Pretty much the same story as housing, equity from this farm recycled to buy the next while leaving the young next to no pathway to owning the land they work on.
Both parties are as guilty as the other. With housing we just up immigration to keep the wheel turning. Farms a bit more difficult as overseas rules on buyers are turning it into a closed loop. Farmers will live in a tent before they leave land so i suppose the banks have good committed interest slaves.
Bank shares might be the best bet!!
So there's no debt problem then - just compliance?
I can assure you every business has inflation, costs etc to deal with. It's the same all over the world no one is being picked on. I'm travelling in Europe and in my talks with business people here if I closed my eyes and it was all in English the story is the same. Inflation is evil and we must stomp on it hard. Nearly all wanted the free cash to flow a few years ago - time to pay the piper.
There always seems to be an assumption the because debt is interest only, principal repayments are not being made. It would be useful to know how many farms with interest only debt make principal repayments. Our farm debt is all interest only. We make principal repayments most years. Some years these are substantially greater than would made be under a structured repayment .This suits our cash flow well. Structured repayments being transferred onto OD rates for the low cash flow part of a season never looks like a great idea. Maybe repayment of interest only debt just requires a bit more focus.
Some may but my discussions with banks many do not. Whose problem is it? The banks or the borrower? Banks don't want property values to fall as it causes ratios to go outside boundaries and it becomes really messy. Each business needs to evaluate risk, as does the lender, but we have relied upon continuing capital gain to cover losses. To be fair it has worked in the past and maybe it still will.
Banks colluding to enforce NetZero ideology is a massive issue. not least that they are undermining the very foundations of the New Zealand economy.
The banks are wearing the pants in the social contract. You don't really hear much about it apart from the housing ponzi - and that's even a relatively small segment of people. The loons would like to shut down the current farming ecosystem overnight with no understanding of the implications. Extreme naivety. And quite possibly socio-economic collapse.
New Zealand is not saving the planet or anyone else.
China now emit more carbon than the entire western world put together (all of Europe, north America, Australia and NZ combined) and their emissions are still going up in a verticle manner.
We (the western world) can go back to living like the stone age and the world is still going to burn (if what we are being told is true).
And that before we even talk about India.
So no, this is all foolishness that benefits a very few at the expense of everyone else.
From what I've read (though I couldn't be sure), our methane emissions from the 1980 baseline have not increased - yet we are still asking the sector to reduce emissions. This makes no sense to me. The UNFCCC framework exempts agriculture where there is a threat to food production. Given our agrarian economy, I just don't 'get' why we don't just take action to 'keep a lid' on ruminant emissions (i.e., relative to the baseline) whilst investing in R&D to lower methane potency in ruminants - a technology that would benefit the whole world.
Let's lead in the latter, not the former.
1990 base line?
The simple answer is because in NZs case this is the easy option.
Jumping on fossil fuel emissions would have the same effect on the Agri economy but would devastate the rest of the economy including banking . PDK is right it's all about energy so avoiding that fact by aiming at non energy Agri is the path of least resistance.
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