Federated Farmers is calling on whoever forms the next government to commission an independent inquiry into rural banking.
“Farmers are doing it tough right now with rising costs, bad weather and falling payouts. The last thing they want to be worrying about is whether they’re getting a fair deal from their bank,” Federated Farmers domestic commerce and competition spokesperson Richard McIntyre said.
The Commerce Commission is currently carrying out a market study into personal banking, looking at the levels of competition, what is or isn’t working well and how things can be improved, but the terms of reference exclude rural business banking.
“Farmers and rural communities deserve to have the same assurances that their banking systems are operating in a fair and proper way.”
Federated Farmers’ latest Banking Survey, carried out in May 2023, showed a noticeable upswing in the number of farmers who felt they had come under undue pressure from their bank.
Numbers were up from 17% in November 2022 to 24% in May 2023. This is the highest level since the surveys began in 2015.
Farm interest rates have increased sharply, with an average interest rate of 7.84% in May 2023, up from a low of 3.79% in May 2021.
The average overdraft interest rate was 10.07% in May 2023, up from a low 6.28% in November 2021.
“Those numbers will only have increased since May as interest rates have continued to climb, economic conditions have quickly deteriorated, and many farmers have rolled off their fixed rates,” McIntyre said.
“Kiwi farmers are currently carrying around $63 billion of debt, so [an increase of 4 percentage points] in interest rates means there will be 2.5 billion fewer dollars circulating in our rural economy.”
McIntyre said farmers are noticing that banks charge much higher interest rates for farm lending than home loans, but there seems to be no clear explanation why that’s the case.
Even if agricultural lending rates were only a percentage point higher than they ought to be compared to residential home loans, that’s still over $600 million being taken directly off farmers’ bottom lines, he said.
Other emerging issues that an inquiry could look into include branch closures and new bank environmental requirements.
“Branch closures in rural communities really impact a farmer’s ability to access the services they need from their bank.
“Farmers are running large and complex businesses and will often need to speak to their local bank manager face to face, particular in the tough times we are currently farming through. A strong relationship and access to working capital is absolutely critical.”