Holding the banks to account

20 Dec, 2014 03:00 AM
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ANZ Australian CEO Philip Chronican. Photo: Luis Enrique Ascui
Parts of Queensland and northern NSW are experiencing some of the worst conditions in a generation
ANZ Australian CEO Philip Chronican. Photo: Luis Enrique Ascui

THE intensifying heat from the farm debt debate has prompted a flurry of activity from bankers trying to quell fears of farm foreclosures and ballooning debts across drought-stressed rural areas.

The Australia and New Zealand (ANZ) Banking Group has been praised by the National Farmers' Federation (NFF) for promising a 12-month moratorium on farm repossessions in drought-troubled northern and western Queensland and North West NSW.

ANZ has also announced new support packages for farmers hit by drought including a 12-month commitment not to lift interest rates on distressed farms.

Big farm sector lenders National Australia Bank (NAB) and Rabobank have also scrambled to allay concerns about the extent of bank foreclosures.

NAB insisted it had no current foreclosure plans involving its drought-hit customers in Queensland and North West NSW.

"Foreclosure is a last resort and happens in very rare cases," the bank said in a statement.

Banks acutely aware of hardship

ANZ's Australian chief executive officer Philip Chronican acknowledged parts of Queensland and northern NSW were experiencing some of the worst conditions in a generation and the lender was "acutely aware of the impact" on farm families and farming communities.

Its foreclosure freeze coincided with Queensland Nationals Senator Barry O'Sullivan promoting a Private Senator's Bill which aims to stop major rural lenders from enforcing penalty interest rates and foreclosing on drought-impacted farmers.

Warnings to financial institutions have also come from federal Agriculture Minister Barnaby Joyce in the past week, who noted government intervention might be necessary to force the banks to be more fair, decent and patient with rural landholders.

Senator O'Sullivan's Drought Affected Farm Business Bill proposes that while a farming property is experiencing a one-in-20-year drought event, lenders will be prevented from applying penalty interest rates or foreclosing simply due to a collapse of the loan value ratio (LVR) covenant of the terms and conditions of the loan agreement.

If a lender decided to foreclose following a breach of a borrower's loan conditions, that foreclosure could not commence until a year after the business was no longer in a drought-declared area.

Rural debt forecast to rise

Average farm debt is expected to rise a least 5 per cent in the Queensland gulf and South West and NSW North West this financial year, according to the Australian Bureau of Agricultural Resources Economics and Sciences (ABARES), particularly if good rain arrives to promote restocking and a big cropping program.

However, despite notable rises in farm debt last financial year, particularly in North West NSW (up 12pc) ABARES also reported about 20pc of farms in the three regions studied had no debt.

NFF president Brent Finlay was quick to contact ANZ executives to applaud their foreclosure moratorium and rate relief action.

Although "pleasantly surprised" by ANZ's move, he noted the silence and lack of action by other leading and second tier lenders was generating farm sector comment.

"The banks are certainly coming under quite a bit of pressure and to some extent they're responding with something of a public relations move, but there's been a lot of scrutiny of bank conduct and it's right that they should respond to legitimate concerns which arise," Mr Finlay said.

"We've heard of farmers being unfairly dealt with by banks - I'm not sure to what extent these claims are correct, but if there are real grievances there's a banking industry regulator to address them."

Mr Finlay said while banks have committed their support to the agriculture sector, farmers also appreciated Mr Joyce's strong stance on the farm debt issue including pulling together roundtable discussions and pressuring lenders to provide some new solutions.

Mr Joyce also congratulated ANZ for responding to "well-held concerns".

"We much prefer the banks to manage their own situation rather than the government having to intervene," he said.

NFF policy, economics and trade manager Tony Mahar said while the number of drought region borrowers who were more than 90 days in arrears had grown to almost 4pc - double the national average for business sector debt - NFF was just as uneasy about a potentially large new group who may be about to slip into debt repayment difficulty.

"If we've got a concerning number of people are struggling now while interest rates are at historic lows, well, look out for what could happen if dry conditions persist and interest rates move up," he said.

"Thankfully there's an increasing chance that rates may come down a bit next year."

NAB, Australia's largest agribusiness bank, said it had almost 30,000 agribusiness customers and had foreclosed on just seven in drought-ravaged Queensland and North West NSW in the past year.

Rabobank's Australian country banking group executive Peter Knoblanche said less than 0.2pc of Rabo's loan portfolio in these areas was subject to current receivership action. Only one was in the pastoral industry.

The vast majority of Rabobank's clients were managing "extremely well in the challenging drought conditions".

Time to take a long view: Taylor

Federal Member for Hume Angus Taylor called on other lenders to match ANZ's foreclosure freeze and commit to further drought and rate relief measures.

Mr Taylor said earlier this week that farming urgently needed to look at longer-term solutions for success rather than get too bogged down by short-term priorities, including how the industry responds to drought, Mr Taylor said.

Agriculture's greatest challenge probably lay in finding sufficient long-term capital to absorb seasonal and market risks and support human resource renewal and farm enterprise expansion.

"Agriculture has been necessarily preoccupied with short-term issues, like the collapse in the live cattle trade and droughts," he said.

"However, there is an urgent need for Australia and New Zealand to overcome more fundamental problems.

"Perhaps our greatest challenge lies in raising sufficient capital to absorb risks, fund growth and support farm turnover. Farm debt levels are already high."

Few external sources of equity capital were available to farmers, particularly in Australia, he said.

"New structures for supporting young farmers into agriculture are desperately needed."

These structures could potentially include rapidly evolving equity partnerships, modern variations of share farming and using off-take agreements, as used in the mining sector, according to Mr Taylor.

"It is time for the banks, farm organisations and governments to sort out a sustainable solution - we can't keep putting band-aids on a gaping wound."

FarmOnline
Andrew Marshall

Andrew Marshall

is the national agribusiness writer for Fairfax Agricultural Media
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READER COMMENTS

wtf
21/12/2014 2:52:48 PM

What amazes me is the constant blindness I see as to what is going on here. Creation of money from thin air and being charged interest is fraud, when questioned one is accused of bank bashing. Does anyone care that the system of fract res banking is inherently destructive, inevitably generates debasement of the currency, extreme inequality, the destruction of the middle class and wrenching business crises? These issues are across the board and aren't just about farming, the problem is everywhere and the alliance between politicians and bankers has to be dealt with.
Beef man
21/12/2014 3:14:29 PM

Producers borrow way to much and when it all goes bad the bank gets the blame my neighbours borrow like no tomomorow and live the high life. When the banks come knocking well they scream hard done by and call them horrible names
Discusted
21/12/2014 10:18:59 PM

For every one of those producers, Beef man, there are now two who never did anything like that. Sticking your head in the sand doesn't make it go away, you know. It could be your turn next!
rearview
22/12/2014 8:46:04 AM

Current circumstances are unfortunate but making wild and irrational statements such as made above by wtf adds nothing useful. What do you suggest wtf - we have no credit system and everyone pay cash? That would trash the value of every asset in the sector.
it's over
22/12/2014 8:47:59 AM

We started farming in 2005. The drought was on us, but was not recognized till later. We were given a dodgy loan and our only recourse is through the financial ombudsman, who refuses to act. The farm assistance scheme loans were refused to us as we have been assessed as non viable.We have paid the bank 1 million in interest only.we have not made a profit since we began. for our part, what we need is free legal assistance to hold the bank accountable, and to get the government loan to continue. Our crippling loan has taken everything. We had no idea that farming was unprotected slave labour
Bushfire Blonde
22/12/2014 9:28:19 AM

Where is Bush Basher Bill on this issue? Maybe the modem in his heavily subsidized satellite Internet connection has melted from the hot air passing through it.
Qlander
22/12/2014 10:08:59 AM

The banks seem to have some serious management/chain of command issues. It make it hard to run a business, when you give your local manager a 3 month heads up of a looming cash flow issue. Get repeated assurances that will be no problems, and then when the (luckily only 2 week) short fall does happen. The payroll is blocked, the manager can't be contacted, and your paying $40 a transaction, plus penalty interest rates.
Bushie Bill
22/12/2014 11:50:12 AM

You seem to be particularly interested in my opinions recently, Bushie Blonde. Why is that? Is it because you know my logic is unassailable and irrefutable? If you had paid more attention, you would know that I no longer respond to posts from fools, particularly from fools who are too stupid to know they are fools. It is a waste of time to try to engage such economic illiterates and brain-dead bozos with IQs lower than their hat sizes. This group is impervious to intellect and rational argument, and therefore should not be honoured with logic. They are ignorant and proud of it.
Bushie Bill
22/12/2014 11:58:16 AM

Thank you rearview. The more people point out to wtf that he is an economic illiterate and intellectual midget, the more he may possibly be embarrassed into doing some simple research to gain a rudimentary understanding of how the banking system works. Probably wishful thinking, there being no fool like a fool who doesn't know he is a fool.
Bushie Bill
22/12/2014 12:04:53 PM

Only a fool would think banks are social services outlets. Boofhead Barney believes bank are social service outlets, there solely for the purpose of meeting the whingeing "give me truck loads of money" RARAs. The Boof neatly provides proof of what we all knew, and that is that the Boof is a fool.
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I've said this before but if farmers are not happy with their CBH Board they should put up or
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I think central wheatbelt is holding CBH responsible for matters way outside of their
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Hey Jock, costs of execution on the East are now at or below the CBH system. You now officially