That’s $292,500 worth of security on a $700,000 share asset which means while farmers have watched the asset value they have in shares climb spectacularly, it hasn’t been fully reflected in an increased ability to borrow.
In reality ANZ managing director commercial and agribusiness Graham Turley said the bank’s lending approach to the shares has changed very little if at all following TAF’s introduction. The first thing bankers looked at when assessing a lending application was the ability of the farmer to repay.
“And that’s about profits and cash flow,” he said.
“The security over the shares isn’t a huge part of the decision. We look at what will the business earn, can it sustain current commitments, can the farmer improve production and manage their costs? Their business plan will play a big part in the decision. Security over shares just adds a bit more to the conversation on top of that.”
While there’s been volatility in the share price it’s remained within an acceptable range but he said the bank was continuing to monitor it closely. He likes the transparency TAF has brought to Fonterra’s earnings and the flexibility in shareholdings now available to farmers.
Westpac Otago Southland agribusiness area manager Peter Moynihan agreed TAF hadn’t meant major changes in how lending was carried out and certainly hadn’t altered any lending decisions in his region.
The new flexibility with TAF, bonus share issues and supply offers had created opportunities for clients.
For those accessing the supply offer it may have meant they didn’t need to come to the bank to borrow for more land but that wasn’t viewed in any way as competition to them.
“What’s good for the client is generally good for the bank,” he said.
Rabobank NZ’s chief executive Ben Russell pointed out, though, that there was some education needed to ensure clients understood the need to communicate with the bank before they sold shares as they’d have to if they sold land over which the bank had security. Banks wanted to avoid having to register a specific security charge over shares.
