Against the grain, Australian banks face rural lending reckoning
SYDNEY: Australian potato farmer Tom Fox says he had never missed a bank payment in two decades before a delay sending a shipment to Indonesia during a trade dispute between the countries prompted his lender to force him into receivership in 2013.
“I got a letter from the bank lawyers saying I had 12 hours to come up with A$ 2.4 million ( US$1.8 million), and that was an impossibility to do on that notice,” Fox told Reuters.
A third-generation farmer who built up the country’s biggest seed potato producer, Fox said his farm and equipment were sold below value by receivers for the country’s biggest rural lender, National Australia Bank Ltd.
Fox’s story encapsulates the issues driving a wedge between Australia’s US$ 50 billion farm sector and its banks as a powerful public inquiry into financial sector misconduct begins its examination of agriculture lending practices.
Shareholder appetite for continuous profit growth and the widespread closure of rural bank branches have left some farmers with a sense that their livelihoods are controlled by city executives with little care of issues beyond their control such as drought, wildfires and trade disputes.
For Fox, for instance, Indonesia’s surprise ban on Australian fresh produce imports - widely seen as retaliation for an Australian ban on live sheep exports - didn’t affect his type of potatoes. But the bank didn’t see the difference when he reported the shipping delay, he says, and called in a receiver.
NAB’s general manager of agribusiness Khan Horne said Fox’s business was under “extreme financial pressure” by 2013, with “significant creditors dating back to the prior year’s trading, payroll issues and pressure from other suppliers”.
In an email, Horne said the bank hired receivers for the potato farm “based on financial default”, and the receivers “sought to work cooperatively with Mr Fox to realize value from the business and other assets”.
Stewart Levitt, a lawyer who has represented about 20 farmers in mediation with banks, said banks had to acknowledge that farming was full of ups and downs.
“The whole way you bank farmers has to be different to the way you bank other sectors of the economy.”
Farm banking in dry, hot Australia has often been difficult, but the relationship has become especially strained in the past decade since a wave of M& A deals left the country’s biggest banks holding loans they might not normally approve at a time of almost continuous drought and volatile commodity prices.
By dollar value, agribusiness is a relatively minor component of Australian banks’ loan books – for NAB, the biggest rural lender, farm loans are about a tenth the size of its mortgage book - but also one of the riskiest and politically sensitive.
A 2017 Senate report on farm finance, which Fox made a sworn submission to, offered a taste of what the more powerful Royal Commission may recommend.
Among the measures recommended by the Senate were a compulsory minimum period before banks can call on distressed farm loans, a ban on banks changing rural loan terms without consultation, and a compulsory national farm debt mediation scheme.
Anne Scott, a principal adviser at the Australian Small Business and Family Enterprise Ombudsman said many farmers still operated like they did when they had very close relationships with their banks.
“But what’s happened is banks have looked at their risk reduction, they see an economic downturn, they’re not interested it might not be very long, they just want to get out of that as quickly as possible.”