Access to credit tightens for farmers

Farmers are correct in saying access to credit has got tighter, and banks are warning that trend will only increase as the availability of cheap money ends and banks look to invest in Asia.

BNZ economist Doug Steel said the amount of credit extended to the agriculture sector continued to grow in the last year or so, but at a slower rate than previously reports The ODT.In the year to the end of February, rural credit grew 7% or $3.1 billion compared with a year earlier, although Mr Steel said that could be in the form of overdrafts, rather than for capital expenditure or expansion. Banks say they have not changed lending policies, but concede they are following those policies more closely, which meant access to funds was tighter or more expensive for some borrowers.

The BNZ's head of agribusiness, Tony Arthur, said this also reflected the higher cost of lending on international credit markets and tighter credit rules being imposed by the Reserve Bank. He said the farming sector had correctly returned to fundamental lending policies after a period when people chased capital gain over cashflow, which had put some farmers under pressure as land prices fell. Mr Arthur said tight credit in the next year would prevent a return to a flood in the number of farms converting to dairying. "I am aware of a number of conversions in Canterbury that are close to pushing the start button, but I don't think we will see the numbers we have seen. But I do expect that as the market consolidates, people's confidence will grow in the industry."

The National Bank's managing director of rural banking, Charlie Graham, said his bank had not changed its lending policy, but staff did not have the same degree of discretion as previously. Mr Graham said banks were also requiring more information and more accurate and tighter budgets. Forecast product prices were still a key input in assessing loans, but he made no excuses for requiring more robust budgets and forecasts. Gone were the days when farmers could expect banks to bail them out of a poorly forecast cost overrun or because their business had outgrown their systems and reporting structures. "It is not something the farming sector has alone. We are seeing it across all business."

"New Reserve Bank regulations require banks to increase the amount of capital they retain against borrowing which Mr Graham said would be reflected in higher cost of credit."The whole credit environment has changed." Banks were also looking more closely at their clients, and those perceived as having a greater credit risk would have that risk reflected in their lending conditions and costs.