Kiwibank's CEO may be reluctant to enter the rural banking market, but lobby group Federated Farmers wants the Government to direct it to do so

Farming lobby group Federated Farmers wants the Government to boost Kiwibank's capital and direct it to enter the rural lending market.

This is one of Federated Farmers' recommendations in its submission to the parliamentary banking competition inquiry being undertaken by the finance and expenditure and primary production select committees.

"The Government should ensure that Kiwibank is properly capitalised and directed to actively enter the agricultural lending market. A well-funded Kiwibank, focused on rural lending, would introduce more competition into the sector, offering farmers an alternative to the dominant players and providing more competitive loan options," Federated Farmers says.

The agricultural banking sector is currently dominated by ANZ, ASB, BNZ, Rabobank and Westpac.

As recently as August Kiwibank CEO Steve Jurkovich reiterated to interest.co.nz his long standing reluctance for the bank to enter the rural market.

"My personal perspective is that the agri market has got quite a lot of big players in it now and one player [Rabobank] who that's all they do. So I'm not sure how much we would add to that market, and I'm not sure how much impact we would have. So it feels like a market that probably is not core, certainly in the short to medium term, where we can make a difference and make Kiwis better off," Jurkovich told interest.co.nz.

His comments came after the final report from the Commerce Commission's market study into personal banking services was released, recommending the Government bolster Kiwibank's capital to help it become a "disruptive maverick" competitor to ANZ, ASB, BNZ and Westpac.

Prior to joining Kiwibank in 2018 Jurkovich worked for ASB, including as Executive General Manager for Business Banking, and Executive General Manager for Corporate, Commercial and Rural Banking.

In 2019 Jurkovich told interest.co.nz; "The market dynamics, having spent quite a bit of time in that agri market, is that is a market that's very well served. There's five large banks including a global player [Rabobank] participating in that market. I think over time we'll always remain open minded, but I think that is a market that's well served and supported so probably not my first port of call."

Federated Farmers, however, wants the Government to "take proactive steps to capitalise Kiwibank and incentivise its entry into the agriculture market through altering capital requirements."

Furthermore, it says, issuing a Government directive to prioritise agricultural lending would ensure this opportunity isn't overlooked.

"With the right backing and direction, Kiwibank can deliver real, tangible benefits to the farming community by providing greater choice and more competitive financial products," Federated Farmers says.

The lobby group suggests Kiwibank could attract significant business in the rural sector, saying its survey feedback shows 40% of respondents indicate they would consider moving to Kiwibank if it offered agricultural banking services. 

Other things Federated Farmers want from the inquiry include; agricultural loans having risk-weighted assets that align more closely with residential mortgages, arguing rural lending is often backed by high-value assets like land, and farmhouses should be classified as residential properties for mortgage purposes, rather than being categorised under commercial or agricultural loans.

Below is a summary of Federated Farmers' recommendations from its submission.

SUMMARY OF RECOMMENDATIONS

2.1 The Government should adjust the capital requirements for agricultural lending. Adrian Orr’s one-in-200-year financial shock standard significantly increases the cost of borrowing for everyone in New Zealand, but disproportionately farmers. We suggest reverting to a more balanced one-in-100-year standard, which would still ensure financial stability while reducing the burden on farmers and improving access to credit.

2.2 Agricultural loans should have risk-weighted assets (RWAs) that align more closely with residential mortgages, as rural lending is often backed by high-value assets like land. Currently, farm loans carry disproportionately high RWAs, leading to increased capital costs for banks and higher borrowing rates for farmers. By adjusting these risk weights, borrowing costs could be reduced, providing farmers with more equitable access to financial resources.

2.3 Federated Farmers recommends that major banks present annually to a select committee. These presentations should include full disclosures on interest rates, lending practices, and profit margins, with a particular focus on how these factors affect agricultural lending. This transparency would enable MPs to scrutinise whether rural borrowers are being treated fairly ensuring accountability within the banking sector.

2.4 Federated Farmers supports the implementation of Open Banking regulations. Open Banking would make it easier for farmers to compare financial products and switch banks, fostering more competition and transparency in the banking sector. This would empower farmers to secure better financial services and lower borrowing costs.

2.5 Banks should take responsibility for empowering rural lending managers by granting them more decision-making autonomy. These managers are well-versed in the specific challenges faced by farmers and can offer more tailored financial solutions. Increased autonomy would improve lending practices and strengthen the relationships between banks and farmers.

2.6 The Government should ensure that Kiwibank is properly capitalised and directed to actively enter the agricultural lending market. A well-funded Kiwibank, focused on rural lending, would introduce more competition into the sector, offering farmers an alternative to the dominant players and providing more competitive loan options.

2.7 Federated Farmers also recommends revisiting overseas investment rules to encourage international finance and banks with expertise in agricultural lending to enter the market. This would increase competition, drive down costs, and provide farmers with access to more specialised financial services tailored to their needs.

2.8 Banks should improve access to interest-only loans for farmers with sufficient equity, particularly those with Loan-to-Value Ratios (LVRs) of 50% or more. Interestonly loans provide essential financial relief during tough periods, allowing farmers to manage their finances without adding undue risk to the banking system.

2.9 Farmhouses should be classified as residential properties for mortgage purposes, rather than being categorised under commercial or agricultural loans. This change would allow farmers to access lower residential mortgage rates, easing the financial pressure created by the current misclassification.

2.10 Banks need to take responsibility for maintaining strong relationships with their rural clients. This can be achieved by ensuring regular on-farm visits by relationship managers, particularly for farmers with substantial loans. Personal contact would foster trust and ensure farmers are supported in managing their financial operations, rather than relying on impersonal service channels.

2.11 Finally, the Government and select committees should monitor the impact of the Net Zero Banking Alliance (NZBA) on agricultural lending. While the NZBA’s environmental goals are important, uniform lending practices driven by net-zero commitments could limit competition and restrict access to credit for farmers. Proper oversight is needed to ensure these policies do not disadvantage the rural sector.

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