Royal Commission tells banks to rebuild ties with ag

Royal Commission forcing banks to rebuild commitment to ag


The farm sector hopes banking industry Royal Commission recommendations will rekindle close links between bankers and regional Australia


After years of banking sector cuts in the bush, the National Farmers Federation hopes the finance industry Royal Commission report will rekindle closer, more practical contact between bankers and regional Australia.

Diminished regional management ground forces have left too many farm customers untethered from useful and regular financial advice and consistent relationships with their lenders, said NFF chief executive officer, Tony Mahar.

“For various reasons, including the decline in local bank manager numbers, a lot of key bankers appear to have lost the depth of understanding they once enjoyed with average farmer customers,” he said.

“Agriculture badly needs a great relationship with the finance sector as the farm sector pushes for a $50 billion productivity lift in the next decade.

“It needs money to invest in developing our industry so we can achieve that $100b production target by 2030.

“We want a flexible, equitable and fair banking industry approach to understanding and working with all players in agriculture.”

I hope they’ll now work towards restoring strong, local knowledge as part of their strategy to help agriculture reach its full potential - David Littleproud, Agriculture Minister

The NFF’s concerns about the rundown in banker skills and empathy with the bush were supported by federal Agriculture Minister, David Littleproud, himself a former agribusiness banker.

“I understand from the evidence to the Royal Commission most banks, with the exception of Rabobank, have decreased their regional footprint and expertise,” he said.

“I hope they’ll now work towards restoring strong, local knowledge as part of their strategy to help agriculture reach its full potential.

“We need to make sure the banks use staff with agricultural experience”.

The farm lobby welcomed the federal government's commitment to establish a national farm debt mediation scheme as part of its response Justice Kenneth Hayne’s Royal Commission.

Tony Mahar

Tony Mahar

Mr Mahar said while some states already had useful mediation rules, they were not uniform and “even the best of them aren’t gold standard”.

The commissioner was also applauded for highlighting unique trading and funding situations which farm businesses often faced, and the unequal playing field farmers encountered when negotiating with the big banks.

Rural financial counsellor Rachel Bock, based at Longreach, believed the commission’s recommendations should lead to improved financial resilience and management in the farm sector.

“A large proportion of our clients often have a limited understanding of the more complex banking structures which are often used in agricultural lending, so they can be disadvantaged when dealing with banks,” said Ms Bock, who works with the service providing assistance to North Queensland.

“Clearer and more open information about fees and charges will put all farmers on a level playing field when negotiating and doing business with banks.”


Mr Littleproud welcomed Justice Hayne’s recommendations for special consideration to distressed agricultural loans.

At the same time he urged farmers to take advantage of the extra period for which they could seek compensation for incidents where they believed banks wronged them in the past decade.

The newly established Australian Financial Complaints Authority (AFCA) will let farmers seek redress against banking incidents dating back to 2008 without having to pay for private legal action.

Commissioner Kenneth Hayne

Commissioner Kenneth Hayne

In general, the Royal Commission has recommended Canberra set out clearer and stricter rules for banks to follow when lending to farmers to better protect them in times of financial distress such as drought.

Banned bank fees

Banks will be barred from charging dishonour fees on basic accounts or charging default interest on farm loans in areas impacted by drought or other natural disasters.

The commission said banks should only appoint receivers or external administrators as a remedy of last resort, and distressed farm loans should be managed by experienced agribusiness bankers.

However, Nationals Senator John Williams, is uneasy “old bad habits which put profits before people” may reappear in the banking sector a decade down the track.

Senator Williams, a key agitator behind the establishment of Commissioner Hayne’s investigation into misconduct in the banking, superannuation and financial services industries, said a mandatory code of conduct would be a good starting point to prevent complacency.

A voluntary banking industry code is due to commence in July, but Senator Williams was uncomfortable about compliance being voluntary.

“However, regardless of my concerns, the publicity surrounding the Royal Commission has highlighted huge wrongdoings which financial institutions have been forced to address,” he said.

Senator John Williams

Senator John Williams

“It’s been a success. The commission’s done a good job.”

Receiver restraints

He was pleased the need for much improved farm debt mediation was understood and emphasised by Justice Hayne, and he welcomed restrictions to receiver appointments.

If it means waiting three years through a bad season or poor market cycle before the farm can be sold for its full value it’s a lot better result for creditors and the landholder - Senator John Williams

Receivers did not have farm management capabilities, therefore vacated family properties were left to run down, stock health was endangered and assets were often sold in a distressed state at reduced values.

“If it means you’re waiting three years through a bad season or poor market cycle before the farm can be sold for its full value it’s a lot better result for creditors and the landholder than forcing a farm to sell at a 50 per cent discount.”

The Royal Commission report declared all farmland valuations should recognise the likelihood of external events such as drought and floods and the time it took to sell land at a reasonable price.

To remove land valuation conflicts of interest it wants the Australian Prudential Regulation Authority to tighten regulations to ensure internal bank appraisals of land be done independently of loan origination, loan processing and loan decision processes.

Agri-bankers keep low

Agribusiness bank executives have kept a low profile since the report was released on Monday night.

Most of the big farm sector lenders were still digesting the Royal Commission’s 76 recommendations and details and could not make comments relevant to the rural sector as yet. 

We believe the NSW model is a good example and base model to create the best possible scheme - Steve Hannan, Westpac

Westpac’s agribusiness general manager, Steve Hannan, said a national farm debt mediation scheme would create more efficient processes, particularly for customers with properties across different states, which would hopefully lead to better outcomes for both customers and lenders. 

“We believe the NSW model is a good example and base model to create the best possible scheme,” he said.  

An ANZ statement from chief executive officer, Shayne Elliott, said the bank was reviewing the report in detail and committed to continuing the work and investment required to build a bank worthy of the trust and respect.

“I recognise the size and nature of our compliance and culture challenge. And I am determined we deal with it,” he said.

NFF president, Fiona Simson, said the Royal Commission’s bright light on the  banking sector, and particularly the complex farm debt issue was refreshing.

Fiona Simson

Fiona Simson

"The chance to refer a challenged farm loan to mediation represents a greatly enhanced chance to reach an outcome that is fair for all involved."

Salient findings

She supported recommendations for specialist agricultural bankers to manage distressed farm loans and for banks to cease demanding  interest repayments when there was no reasonable prospect of recovery.

"The recommendations are particularly salient at the moment as farmers across the eastern seaboard and Tasmania manage drought, floods and bushfires,” Mrs Simson said.

"No doubt farmers contending with these natural disasters will need to negotiate paths forward with their lenders.”

Mr Littleproud was asking state agricultural ministers to support the national debt mediation move at this week’s Agricultural Ministerial Council.

“We need a harmonised national approach so farmers know what to expect.”

Hayne’s key recommendations:

  • Establish a national scheme to mediate farm debts.
  • Banks would be barred from charging dishonour fees on basic accounts.
  • Require banks not to charge default interest on loans secured by farm land in an area declared to be in drought or subject to other natural disasters.
  • Have banks ensure managers of distressed farm loans are experienced agricultural bankers.
  • Recognise that appointment of receivers on a farm loan is a "remedy of last resort".​

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