Thursday, April 25, 2024

Banking inquiry: ‘Let’s get it underway’

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Federated Farmers says a lot of farmers feel uncertain about whether or not banking rates are too high because of the lack of transparency.
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It’s time to stop talking about a rural banking inquiry and make it happen – that’s the message from Federated Farmers to the government. 

Leading up to last year’s General Election, Federated Farmers called strongly for the incoming government to commission an independent inquiry into the state of rural banking in New Zealand. 

“We wrote and spoke to all the political parties pre-election, saying what we wanted and why. We had broad support from the parties for an inquiry into rural banking,” Federated Farmers domestic commerce and competition spokesperson Richard McIntyre said.

“Since then, we’ve had some really good discussions with the chair of the Primary Production Select Committee, Mark Cameron, about them picking it up and running with it. 

“So, Mark, let’s get it underway. Let’s give rural businesses and rural families some certainty about the fairness of the interest rates they’re paying and the services that they’re getting.”

Speaking on the Federated Farmers Podcast, McIntyre said rising interest rates combined with high inflation have put many farmers under huge financial pressure.  

“They’re seeing big differences between the rates banks are advertising for residential borrowers and the rates banks are charging them as farmers, and they’re frustrated at the amount of pressure it’s putting them under.”

McIntyre said everyone in New Zealand is battling with high interest rates and high inflation, but whereas national inflation has risen roughly 7% over the past few years, on-farm inflation has been more like 13% to 17 % during that time. 

“And yes, interest rates have gone up for both urban and rural, but rural rates still sit roughly 1.5%, sometimes 2% more than urban rates. 

“We need an inquiry that gives farmers an understanding of what’s driving their interest rates and whether it’s fair and reasonable. If an inquiry finds it’s not fair and reasonable, then we need to know what should change.” 

The banks’ use of risk weightings for farmers also needs to be investigated, McIntyre said. 

“Farmers are going through a really hard time at the moment but, as they begin to struggle more, their interest rates go up. It seems counterintuitive that, just when the farmers are really needing some help because they’re struggling under the burden of high interest costs, their interest costs are going up even further.”

McIntyre says he’s raised these issues with the Reserve Bank and rural lenders. 

“They each accept there’s a difference in interest rates between residential and rural, but they both quietly point the finger at the other. 

“So, the Reserve Bank says they’re happy with the current regulation, and they believe it’s fit for purpose. They think any additional interest farmers are paying is either acceptable or the result of the risk weightings set by the banks. 

“The banks say the difference is down to Reserve Bank regulation.

“So, there is a significant regulatory component to this that needs to be dealt with.”

Scott Wishart, a director of New Zealand Agri Brokers (NZAB), joined McIntyre on the podcast and agreed there needs to be greater transparency from the rural banks. 

“I think a lot of the reason farmers feel really uncertain about whether or not rates are too high is because of the lack of transparency around what actually drives that rate they’ve ended up with.”

Farmers often perform more strongly when they’re confident, but it’s hard to feel confident when they don’t feel in control of their finances, he said.  

“Finance is clearly one of those things where if you perceive you don’t have control, you become less confident about whether you’re getting a good deal.” 

Although there needs to be greater transparency from the banks, there are steps farmers can take now to improve their situation, Wishart said.

“I think there’s some responsibility here for farmers to negotiate with the banks more than they are currently.”

Farmers have the opportunity to pay less when their businesses get stronger, but they need to be showing up to the bank with a clear strategy and budget, demonstrating they deserve a better deal, he says. 

McIntyre agreed there’s some low-hanging fruit for farmers.

“So often farmers don’t understand there are some simple non-financial things they can do to drop their interest rate. Providing a budget and regularly updating it is one of those things.

“If you don’t know how to do it, find someone to help you do it, but start doing it to give the bank some confidence to lend you the money at a lower interest rate.”

More: Hear Richard and Scott discuss rural banking in episode three of the Federated Farmers Podcast, which goes live on February 26 –

Federated Farmers, New Zealand’s leading independent rural advocacy organisation, has established a news and insights partnership with AgriHQ, the country’s leading rural publisher, to give the farmers of New Zealand a more informed, united and stronger voice. Feds news and commentary appears each week in its own section of the Farmers Weekly print edition and online.

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