Tuesday, March 19, 2024

Banks want farm billions back

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Floating farm mortgage rates and some fixed rates fell after the Reserve Bank slashed the Official Cash Rate but not all farmers are benefiting.
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The country’s largest rural lender, ANZ, said it will cut its agri variable base rate by 40 basis points from today and its fixed base rates by between 20 and 30 basis points.

Other banks also signalled cuts to rural lending rates after the Reserve Bank moved to head off a slowing economy by lopping 50 basis points off the benchmark interest rate to a record low 1%.

Federated Farmers general policy manager Nick Clark is keeping a close eye on how much the banks are passing on to rural clients.

“It does not look like there has been much movement on fixed term rates or floating rates for overdrafts but there appears to have been, for some farmers anyway, reductions in floating mortgage rates of between 30 and 40 basis points.”

Farmers the banks have not passed the cuts to are most likely to be those in need of them most, Fraser Farm Finance principal Don Fraser said. 

“It will be passed on to those who have got strong balance sheets but those who are struggling and have got poor ratios I would suggest that the banks are not going to reduce their rates at all because they see that (level of debt) as risk.”

Banks face increasing regulatory capital requirements from the Reserve Bank and have decided they want the most indebted farmers off their books.

“They will be saying we want more principal back and their interest rate will stay the same and they will force the hand of the farmers.

“That is how they roll up the people they do not want.”

Fraser said a banker told him of a billion dollars of farm debt the banks are no longer prepared to carry in Northland and another billion in Southland.

Federated Farmers’ Southland vice-president Bernadette Hunt said farmers there are definitely coming under more pressure from banks to repay debt.

“Because they are being firm on their requirements for debt reduction they are not approving finance on capital spending or development projects as readily and also potentially approval of farm purchases or additional stock.”

Tighter credit is bad news for the most indebted dairy farmers who, without the help of their banks, could struggle to fund the improvements their properties need to comply with stricter winter grazing rules proposed by Environment Southland and possibly central government. 

“Who knows what the impact will be if farmers are pushed into wintering barns or concrete standoff pads which can be great on a farm but have a very large capital outlay.”

Hunt fears changes to winter grazing rules could force farmers to reduce cow numbers and struggle to maintain sufficient cashflow to service existing debt.

That could undermine land values, worsen debt-to-equity ratios and compel the banks to demand even faster repayments.

At the other end of the country it is the dry rather the wet that has left farmers vulnerable.

Federated Farmers Northland vice president Colin Hannah said successive droughts mean many of the province’s dairy farmers have struggled to recover from the low payouts of 2014-15 and 2015-16.

“There has been a lot of accumulated debt and the banks have funded it up until now but now they want out.

“Our expectation is that we are going to see a number of farm sales.”

 

ANZ cut its variable agri base lending rate by 40 basis points today. It cuts its Agri fixed base rates 20-30 bps tomorrow.

Westpac cut its agri variable rate by 35 points.

ASB cut its base lending rates by between 29 and 36 points.

Rabobank cuts its variable base rate by 30 points next.

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