Friday, March 29, 2024

More farmers feel bank pressure

Avatar photo
More farmers are coming under pressure to repay debt as concerns about the impact of new capital rules on borrowing costs and availability continue to mount, according to Federated Farmers’ latest banking survey.
Reading Time: 2 minutes

The percentage of farmers reporting undue pressure from their banks to repay mortgage or overdraft debt jumped to 16.2% in May from 11.6% in November.

Dairy farmers are most likely to report undue pressure, rising from 16.2% in November to 20.2% in May, the highest proportion since the survey began in August 2015.

More non-dairy farmers also report pressure from lenders, jumping from 7% in the last survey to 10.3% last month.

More farmers, both dairy and non-dairy, report changes in loan terms, such as changes in margins, security or more information required by their bankers.

While 71% of respondents are satisfied or very satisfied with the performance of their banks that is down from 74% in November and continues a steady decline from the 80% starting point four years ago.

The increasing tension between banks and their farming clients comes despite continued falls in interest costs.

The average farm mortgage rate eased from 5.1% in November to 5% in May, down from 6% in August 2015.

The average overdraft rate of 7.4% was stable between the two most recent surveys.

The Reserve Bank cut the Official Cash Rate by 25 basis points to a record low of 1.5% on May 8.

The central bank estimates about 15 basis points of the cut have been passed on by the trading banks to borrowers in lower rates.

The survey period also covered an email by the country’s largest rural lender ANZ to its farmer clients on April 24 flagging possible tightening in lending as a result of new minimum capital requirements proposed by the Reserve Bank.

Federated Farmers commerce and trade spokesman Andrew Hoggard said the banks have made it clear the changes will lead to significant increases in borrowing costs for farmers if they proceed as planned.

“The Reserve Bank’s very conservative stance on this is causing quite a bit of resentment,” he said.

Hoggard recently met Reserve Bank deputy governor Geoff Bascand to discuss the proposals.

Federated Farmers has sided with calls from the trading banks to soften them.

In its submission to the Reserve Bank it says the trading banks should be required to hold only enough capital to withstand a 1-in-100 year downturn.

The regulator wants the banks to hold enough capital to remain solvent in the event of a 1-in-200 year economic crisis.

Federated Farmers says that is excessive and will result interest rate increases for farmers of between 80 and 120 basis points.

Multiplied across the sector’s existing $63b debt pile that would see farmers slugged for between $120m and $800m annually in increased interest costs.

The Reserve Bank is reviewing 164 submissions received on the proposals and expects to respond in November.

The new capital minimums will begin to be phased in from April next year. 

Total
0
Shares
People are also reading