Building financial resilience in the rural sector
How building financial resilience into rural businesses paves the way for future growing.
Times of challenge and change inevitably foster conversations about futureproofing businesses and accessing the tools they need to perform better and cope under pressure.
For ASB’s rural banking team, that means having conversations with new and existing customers about building financial resilience into their businesses that will pave the way for future growth, and handle the challenges likely to be faced in the period ahead.
Acting general manager rural banking Richard Spittle says top of the list during these conversations has been a personally tailored discussion about debt levels, and the systemic change in the industry that has seen the long-term financial focus of farming move towards making interest and principal payments, rather than relying on capital gain.
“We’ve specifically had a strategic focus on building what we call financial resilience within the agriculture sector,” he says. “We fundamentally believe it’s really important for farmers to focus on repaying debt and making principal payments as part of their business year on year.”
This year’s Covid-19 crisis poses a risk on top of ongoing challenges including climate, environmental regulations and compliance costs. Spittle says financial resilience provides confidence that challenging periods can be weathered without too many variations to the business.
“It’s also important from a confidence and belief perspective. If you feel your business is resilient in regards to volatility, and changes in commodity prices and climate change, that’s really powerful and obviously leads to wellbeing and peace of mind that makes you feel confident you can handle what’s ahead of you.
“So we feel it’s really important to lead customer conversations with questions around how resilient the business is, how they feel about their current debt levels, and how we can work together to ensure they’re comfortable, we’re comfortable, and they have a stronger business long term,” he says.
Spittle says the positive relationship between ASB’s rural managers and their customers is critical. The conversations aren’t always easy, but many farmers are responding to the challenge, with the dairy sector in particular seeing a significant reduction in debt over the past 12 months. He says it’s a trend that will continue sector-wide, including the Sheep and Beef sector where the same resilience conversations are being held. While there are certainly variants according to both sector and geography, as a rule, the bank doesn’t see capital gain land values increasing rapidly over the short term.
“Fundamentally, we believe for farmers to continue to build equity in their businesses and to make them more sustainable for the future they will need to continue to repay debt. That’s the same conversation we have when we assess new lending applications. How will the customer build equity in the business? Can they build equity by repaying debt and making cash year on year. That’s a key ingredient to taking the business forward. If it ticks those two boxes, then it’s a quality deal and we’ll 100 per cent support those customers.”
In times of challenge, such as drought or the Covid-19
“We’ve specifically had a strategic focus on building what we call financial resilience within the agriculture sector
Richard Spittle
uncertainty, a history of paying off principal provides an extra layer of resilience that wasn’t there before with the potential of a suspension of principal payments to assist during a tough cash flow period.
While 2020 may already have brought its fair share of challenges, Spittle says there’s confidence in the rural sector.
“Customers have lent into the challenges of the climate and Covid, and seem confident they will come out the other side. We feel it’s a great sector to be in going forward.”