Federated Farmers are 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 says.
The Commerce Commission are 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 could 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, so Federated Farmers are calling for the Government to support an independent inquiry into rural
banking."
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.
The survey also indicated that farm interest rates had increased sharply, with an average interest rate of 7.84% in May
2023, up 4% from a low of 3.79% in May 2021.
The average overdraft interest rate was 10.07% in May 2023, up 3.79% 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 a 4% increase in interest rates means there will be
$2.5 billion fewer dollars circulating in our rural economy.
"Farmers are also 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.
"We want to know if higher interest rates for farmers are increasing banks' profitability or cross-subsidising a much
more competitive market for home loans. We also want to understand what role regulation plays in the higher interest
rates farmers are paying."
Even if agricultural lending rates were only 1% higher than they ought to be compared to residential home loans, that’s
still over $600 million being taken directly off farmers bottom lines, McIntyre 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."
Feds also have significant concerns about whether New Zealand banks' participation in sustainability initiatives like
the Net-Zero Banking Alliance are reducing competition in agricultural banking.
Under this alliance, banks have collectively agreed lending strategies including setting 2030 targets for reducing the
level of emissions associated with lending.
The BNZ is the first bank to announce a target in New Zealand, stating they aim to reduce greenhouse gas emissions from
dairy farming by 11 per cent in the next six years.
"This banking alliance raises some very serious questions about whether our banks are acting in a truly competitive
manner, or if the joint commitment is effectively banks collaborating on a joint lending strategy," McIntyre said.
"Individual companies are free to put in place whatever requirements they like, but we have a real issue when the main
competitors are collectively setting requirements that leave farmers without choices.
"There is potential for the Commerce Commission to consider what pre-competitive commitments banks in New Zealand can
make before consumers rights to a competitive market place are compromised," McIntyre concluded.