Lending to farmers fell by $443m in December, the biggest monthly drop since the Reserve Bank began compiling figures in 1990.
After peaking at $63.86b in July farm debt slipped back to $63.08b at the end of last year.
Dairy farmers are bearing the brunt of the rural credit crunch.
They paid back $367 million of debt in December, taking their total repayments since August to $1.12b. Total dairy debt peaked at $41.53b last May.
Sheep, beef and arable farmers also now appear to be in the firing line. After 20 months of lending increases they repaid $128m in December.
Horticulture is bucking the trend for now, with lending to the sector hitting a new, all-time high of $4.99b.
December’s sharp pullback for most types of farm lending coincided with the confirmation by the Reserve Bank of new capital requirements early in the month.
Bank capital must be doubled to $20b in seven years to help lenders withstand a 1-in-200 year economic shock.
The Australian-owned banks were struck a further blow in August after their own regulator restricted the capital they can deploy to their New Zealand subsidiaries.
Farm loans soak up more capital per dollar of lending compared to less risky residential mortgages and have been highlighted by the banks themselves as being among the most vulnerable to capital rationing and a resulting tightening in credit from the new requirements.
Federated Farmers vice-president Andrew Hoggard said the latest lending figures reinforce concerns some banks are pushing debt repayment too hard.
Farmers are juggling multiple challenges from drought in the North Island to floods in the south and a sharp correction in meat prices as a result of supply chain disruptions caused by the coronavirus outbreak in China.
“Assuming we are in a short-term situation and things go back to how they were relatively quickly there is an ability to get debt levels down more.
“It is something we need to do to build more resilience in our farming businesses so we can cope with shocks but it is all about the pace of change and not losing people getting there.”
Federated Farmers is due to meet the Bankers Association next week to put its concerns directly.
There were some signs of a softening by the banks last week after the Government gave official status to drought-hit Northland.
The largest rural lender, ANZ, said it is ready to suspend or reduce principal repayments and increase overdrafts to help farmers meet unexpected feed costs. The other major banks made similar pledges.
Northland Federated Farmers vice-president Colin Hannah welcomed the supportive words but wants to see the banks follow through with action before applauding too loudly.
“The pressure is still on farmers and we are seeing some where it is being suggested that the best thing for them is to sell.”
Scott Wishart, the managing director of agricultural debt advisory firm NZAB, said some farmers are not waiting to be asked by their bankers for principal repayments and are taking the initiative themselves.
“If you are meeting a principal repayment structure of 20 years and not asking the bank for more money that tends to be the easiest way to stay off the radar at the moment and we are seeing a desire from farmers to stay off the radar.”
Where lenders insist on principal repayments they tend to schedule them for the second half of the year when the first new-season milk or lamb cheques are hitting farmer bank accounts.
Lending figures for the first six months of 2020 will give more clues on how aggressive the banks get.
“I think we are not seeing the full impact of that amortisation yet,” Wishart said.
