Farmers losing faith in banks
Farmers’ overall satisfaction with their banks remained strong but was steadily declining according to Federated Farmers’ latest banking survey.
Satisfaction rates fell to their lowest point since the survey began in August 2015, economics and commerce spokesman Andrew Hoggard saying more than 1300 responses showed the overall satisfaction rate was down from 74 per cent six months earlier to 71 per cent.
The decline was most apparent among dairy farmers and sharemilkers.
The proportion of farm businesses with mortgages rose 4 per cent to 81 per cent, but dairy farmers were the only group to see an increase in mortgage amounts since November. They also had the largest mortgages, most of them owing between $2 million and $20m.
“Perceptions of pressure from banks has jumped, with 16 per cent of farmers perceiving they have come under undue pressure, up 5 percentage points since our November 2018 survey. The arable and dairy sectors are feeling this particularly, with more than one in five dairy farmers citing extra strain,” Mr Hoggard said.
“This might seem counter-intuitive, given that dairy farmers’ incomes and profitability have been recovering since the 2014-16 downturn. Banks generally stood by their dairy clients during that time, and allowed them to increase debt to get through. It’s not a surprise that banks want that debt paid down now that dairy returns are better.”
New Zealand Bankers’ Association chief executive Roger Beaumont was pleased to see that most farmers remained satisfied with their banks, however.
“Our banks stand by their agri clients in good times and bad. That was particularly evident during the dairy downturn,” he said.
As well as a general tightening of conditions over the past couple of years, the Reserve Bank’s proposed increases in bank capital requirements was a more recent factor behind the erosion in farmers’ satisfaction levels with their banks, and perceptions of pressure. Banks were telling farmers the required increase in capital would lead to tougher lending conditions and higher interest rates for borrowing.
“The Reserve Bank’s very conservative stand on this is causing quite a bit of resentment,” he said, adding that the Bankers’ Association analysis showed that the proposal to almost double capital requirements would impose a nett cost of $1.8 billion a year on the economy.
“Depending on individual banks’ commercial decisions, it’s fair to say there’s likely to be an impact on customers,” he said.
Federated Farmers has met with Reserve Bank officials and lodged a formal submission, asking the bank to rethink its one-in-200 years risk tolerance and take a less risk-averse approach, to undertake a robust, independent cost-benefit analysis, including on sectors like agriculture, and to adopt a longer transitional period, allowing for a more measured, gradual pace of any change.