Lower dairy prices for struggling farmers have seen impaired loans in the Commonwealth Bank of Australia's (CBA) $21 billion agricultural portfolio jump 36 per cent in the six months to December.
The bank now has $458 million in impairments in its agricultural loan book, but a vast majority of this relates directly to the dairy sector where the future could actually change for the better following a price slump.
New Zealand dairy exposures account for $333 million of these agricultural impairments.
Other banks will also have to watch their exposures to dairy.
"Troublesome and impaired assets are up slightly but it is important to note here they are absolutely in line with the growth in the portfolio," CBA chief financial officer David Craig said delivering the banks results last week.
"And to the extent that there is an increase there, it is due to NZ dairy."
"It is very pleasing to see however the latest Fonterra milk price at $6, which is 14 per cent up this period and at $6 basically the dairy farms are above their break-even point so we do expect to see less stress in dairy going forward."
National Australia bank had roughly $300m in impaired NZ dairy exposures as of September 2016.
Westpac's last available financial data showed the percentage of its $5.5b NZ exposure that was stressed rose from 4.74pc to 25.29pc in the year to September 2016, while the percentage of impaired NZ dairy more than doubled.
"The majority of dairy security assets are in prime farming areas where values have been maintained," Westpac said.
"Max 65pc of loan-to-value ratio on farmland."
Westpac also sees an improvement in the NZ dairy sector.
ANZ's last data on its dairy exposures showed that it had a $NZ12.4 billion exposure to NZ dairy and that the probability of default rose to 2.2pc from 1.1pc in the year to September 2016.
Of the group's overall $34.5b agricultural book, 39.6pc is currently in dairy.
- This article appeared first in The Australian Financial Review