Friday, March 29, 2024

Banks lending but getting picky

Neal Wallace
Some banks appear to be making a play for a greater share of the rural lending market but a financial adviser warns the overall trend is for banks to reduce lending to the sector.
Reading Time: 3 minutes

Accountants have noted some banks are seeking new rural business but rural finance adviser NZAB managing director Scott Wishart says individual banks appear to be repositioning themselves rather than making a concerted push to lend more money to farmers.

“There are always some banks getting in and some getting out,” he says.

Total farm debt is $62.8 billion, up 270% on 20 years ago, but Wishart says net debt has fallen $1b in the past year or so.

Rabobank and Westpac are actively working to increase their exposure but the three other trading banks are watchful and all banks are being particular about who they lend to.

“On balance, debt is reducing.”

Some banks are amortising their rural debt and their appetite for new customers is sporadic and needing to be gold-plated, he says.

“Until the metrics start to improve and regulations start to be relaxed we can expect a continued focus on debt reduction in the industry.”

Banks are unsettled by heightened risk from a forecast easing in milk prices, increased regulation and the impact on land values from tighter rules controlling overseas investment.

Reserve Bank data comparing bank lending portfolios from March 31, 2019, with March 31, 2020, show the ANZ, BNZ and ASB have shrunk their rural lending books by about $1b collectively while Westpac and Rabobank have increased their exposure by about $800 million.

Rabobank chief executive Todd Charteris says in the year to March 31 the bank grew its portfolio by $523m, securing a 17% share of the rural lending market and making it the third largest agricultural lender.

“We are open to new lending proposals with high-performing agricultural businesses able to achieve sustainable profitability, meeting both financial and non-financial obligations.”

The sector has responded well to the challenges posed by covid-19 and Charteris is optimistic about long-term prospects.

“Food and agribusinesses will make a critical contribution to New Zealand’s economic recovery.”

A Westpac spokesman says the bank has also increased its market share in the last year and is taking a long-term view of the sector.

“While the agricultural sector has come through the covid-19 lockdown largely unscathed we expect falling commodity prices to affect overall incomes in the second half of this year.

“However, by and large, we expect the sector to remain profitable.”

An ANZ spokesman says the bank is focused on supporting existing customers and the temporary relief from the new capital requirements by the Reserve Bank has helped provide that support.

While the primary sector fared reasonably well in lockdown exports are highly dependent on economic conditions in offshore markets.

“That said, people have to eat and our increased exposure to developing markets appears to be a blessing in the current situation as food demand in these economies may prove more resilient than the developed economies where a large portion of the food spend is more discretionary.”

The price of global dairy products has held up so far but ANZ expects values to weaken, which will put pressure on farmgate milk prices.

Meat export prices have generally softened despite global supply disruption with the more expensive, restaurant-oriented cuts suffering the most.

“The horticulture and arable sectors have done an outstanding job.

“Kiwifruit is benefiting from global consumers focusing on healthy products while the fortunes of wine producers vary depending on their typical sales channel.”

The Reserve Bank’s monetary policy committee is continuing with its bond-buying programme, which should keep interest rates low for the foreseeable future and help banks support customers.

“The large-scale asset purchase programme aims to continue to reduce the cost of borrowing.

“Retail interest rates have declined with lower wholesale borrowing costs.

“It remains in the best long-term interests of the banking sector to promptly maximise the effectiveness of our large-scale asset purchase programme.”

The relaxing of restrictions on business activity in some trading partners provides some confidence for NZ’s exports.

“However, members noted that these positives could be short-lived given the fragile nature of the global pandemic containment.”

Total
0
Shares
People are also reading