Source: Federated Farmers
Farmers are angry about a rural banking system that isn’t working properly, poor bank behaviour, and Reserve Bank rules that hamstring the agricultural sector.
The Federated Farmers submission to Parliament’s banking inquiry includes more than 1500 comments from farmers fed up with paying over the odds for banking services.
“Lack of competition in rural banking, unfair practices, unjustifiably high interest margins and overly cautious Reserve Bank restrictions are seriously disadvantaging the nation’s food producers and export income earners,” Federated Farmers banking spokesperson Richard McIntyre says.
Federated Farmers believes farmers are currently paying up to 1.7% more in borrowing costs than they should in a fair and open market.
“We’re calling for urgent banking reform in the agricultural sector, where $62.5 billion in lending means even a 1% difference in margins represents $625 million,” McIntyre says.
One of Federated Farmers’ key recommendations is for the Government to revise the Reserve Bank’s stringent one-in-200-year financial shock standard, which significantly raises borrowing costs for farmers.
Moving to a one-in-100-year standard would still ensure stability while lowering costs for rural borrowers, McIntyre says.
As well as the extensive feedback from farmers, Federated Farmers’ 140-page submission to the inquiry includes experts’ opinions, former bankers’ perspectives and research.
More than one in five Kiwi farmers say their bank isn’t allowing them to structure their debt to minimise interest payments as much as possible.
Too many farmers are pressured to use overdrafts to manage debt repayments or fund capital projects – tasks overdrafts were never intended for.
In fact, 12% of farmers say their bank has asked them to fund capital work using an overdraft.
“This is unacceptable,” McIntyre says.
“Overdrafts are designed for managing seasonal cash flow, not to burden farmers with higher-interest debt to boost bank profits.”
Federated Farmers’ submission says agricultural loans should have risk-weighted assets (RWAs) more in line with residential mortgages.
“Rural loans, backed by valuable land, currently carry higher RWAs, inflating borrowing costs for farmers. A fairer system would provide more equitable access to credit.”
The Government should ensure Kiwibank is properly funded and instructed to enter the agricultural lending market. Increased competition from a well-capitalised Kiwibank would give farmers better loan options, McIntyre says.
“Our survey data found 40% of respondents would consider moving to Kiwibank if it offered agricultural banking services. Many farmers feel trapped by their current banking relationships.”
Farmers also want more accountability and transparency from rural banking services.
“Major banks should be required to present annually to a select committee, fully disclosing interest rates, lending practices, and profit margins related to agricultural lending.”
Farmhouses should be classified as residential properties for mortgage purposes, not as commercial or agricultural loans.
“We also think banks should offer more interest-only loans to farmers with sufficient equity, particularly those with Loan-to-Value Ratios (LVRs) of 50% or more,” McIntyre says.
“These loans would provide financial relief during tough times without increasing systemic risk.”
Among other recommendations in the Federated Farmers submission is a push to implement open banking regulations.
“These would allow farmers to more easily compare financial products and switch banks, fostering greater competition and lowering borrowing costs.”
McIntyre says Federated Farmers is not arguing for special treatment for farmers, just fairness and transparency.
“We want to get back to those times when banks worked hard to maintain strong relationships with rural clients through regular on-farm visits, especially for those with substantial loans.
“The banking inquiry is a huge opportunity for Parliament to significantly reduce costs in the agricultural sector and put in place competition that helps ensure farmers are treated fairly when they access capital to invest.”
