A long-awaited Parliamentary probe into rural lending hasn’t even started and at least one bank is dragging its feet about appearing for questioning.
Getting to the bottom of why farmers pay more in interest than homeowners is one of the top priorities for the Finance and Expenditure and Primary Production select committees, which hope to report findings from their banking inquiry back to Parliament before the end of the year.
The chair of the Finance and Expenditure Select Committee, National MP Stuart Smith, said he could compel bank executives to appear – but he doesn’t expect to have to use those powers.
“I did point that out to a banking representative when they suggested it will be quite difficult to align diaries and so on.
“I told them their social licence would be lost if they didn’t appear or it didn’t appear that they wanted to appear.
“But I am sure they will turn up and I am sure they will cooperate.”
The inquiry’s terms of reference, released in August, include questions about the extent to which rules set by the Reserve Bank are to blame for high rural borrowing costs.
The banks say the rules requiring them to hold additional capital against rural loans are a large contributor to the higher lending costs for farmers.
But Reserve Bank Governor Adrian Orr says the criticism is unfair and the banks are using the rules as a fig-leaf for charging higher interest margins on rural loans than is justified.
Smith said he is keeping an open mind about who is right but does expect Orr to appear before the committee members to explain himself further.
“Either the Reserve Bank is requiring the banks to hold too much capital unreasonably and they may or may not be.
“Or the banks themselves are deciding to hold more capital than they need or they have got a margin on their lending which is greater than it needs to be.
“We do not know the answer to that but that is what we seek to find out.”
Comparing interest margins here with comparable rural loans overseas is one way the committee can assess whether the banks are gouging their farmer clients, Smith said.
“The big five rural lenders all operated overseas and we will ask them what is happening overseas and I would expect them to tell us.”
Asked what confidence the public could have in committee members to properly scrutinise those answers, Smith said the committee will appoint specialist advisers to assist it. Officials from the government’s key economic departments will also be on hand.
“We will fact-check them. I would expect them to be fulsome with their answers and to be honest – I am not going to question that for a moment – but we will do what we can to validate those answers.
“We need to get the answers to those questions because if we do not have a competitive banking sector that is making enough money to be a viable, thriving business but not so much that they are strangling the sector or taking unreasonable profits then we will not have a successful economy.”
