One of the country’s largest rural lenders is asking what new information will emerge from an inquiry into rural lending practices.
The government has requested the Primary Production Select Committee open an inquiry into rural banking, but an ANZ spokesperson says the bank is unsure what new information it will glean that farmers and Members of Parliament do not already have.
The select committee began a briefing on rural bank lending practices in February and based on what it was told, recommended further scrutiny.
This week the government asked the Primary Production and Finance and Expenditure Select Committees to hold an inquiry.
The ASB, ANZ and Rabobank have all welcomed the inquiry as an opportunity to have a fact-based look at the industry and to improve the transparency of agribusiness lending and the factors influencing lending interest rates
Federated Farmers told the committee that banks are shying away from lending to the rural sector and charge higher interest rates, make it tougher for farmers to borrow – and when they do they favour costlier overdrafts over term debt.
They also claim that customers previously considered safe are being re-categorised as distressed.
Responding to questions from Farmers Weekly, banks said they have not lost their lending appetite to the rural sector but that rural lending conditions reflect the associated risk.
They vowed to work harder to improve their relationships with customers.
Rebecca James, ASB’s executive manager for business banking, said the ASB has increased to 17% its share of the rural market in the past 12 months, evidence it is not shying away from lending to the sector.
Rabobank NZ chief executive Todd Charteris said the specialist agribusiness bank takes a long-term view of lending to the sector and has a $16.6 billion rural portfolio that has grown near $4.5bn in five years.
The spokesperson for ANZ said it has close to $15bn on loan to the rural sector, representing 24% share of the market.
“ANZ is committed to supporting the sector now and into the future.”
In a period of high inflation and interest rates the spokesperson said it is understandable many are questioning what they are being charged.
In the past decade the sector has become more resilient as customers took advantage of lower interest rates and higher commodity prices to reduce debt.
Interest rates are determined by economic conditions, regulatory and monetary policy, customer security position and risk profile.
The Official Cash Rate has increased from 0.25% in October 2021 to the current rate of 5.50%, while market wholesale rates have also increased materially.
“Over the same period the average agri customer rate has increased by less than 4%, ANZ’s carded floating home loan rates have increased by 4.20%.”
Most of ANZ’s agri customers are on variable rates so rises in interest rates hit them sooner.
Overdrafts make up less than 2% of agriculture lending.
“History shows us that lending to businesses, including the agri sector, is riskier than lending to homeowners. As a result, we hold twice as much capital against agri lending as home lending.”
On the accusation banks are profiteering, the spokesperson said using return on equity (ROE) as a measure, ANZ’s average post-tax ROE of 12.3% over the 2010-2021 period was materially the same as the average post-tax returns of 12.2% of a valid peer group of international banks.
James said the ASB wants to work with farmers to address concerns they are feeling pressured from banks.
She reiterated that lending to the sector is considered more risky than lending to homeowners as farms often have volatile earnings, properties usually have limited alternative uses and there is often a lack of liquidity in the rural property market.
Westpac NZ’s head of agribusiness Tim Henshaw said its loans are competitively priced and the bank has not changed policy or enforcement of customer loan repayments in recent years.
“Lending to businesses like a farm carries greater risk than lending on a residential property – for example, a farm’s profitability can be more subject to weather events, market volatility, and other forces outside of its control.”
