Australian banks, holding about 85% of New Zealand’s bank lending, play a pivotal role in the financial stability of New Zealand’s agricultural sector. This significant share puts New Zealand’s farming and horticultural communities largely under the influence of decisions made by banking executives in Australia.
According to financial expert Alexander, in the event of an economic downturn, Australian banks have historically shown support for farmers during the initial year. However, the level of support in subsequent years may vary, heavily depending on the individual financial situations of farmers and horticulturists. While some may receive continued assistance, others might not be as fortunate.
Alexander highlights that the primary concern of these banks is to safeguard the interests of their shareholders. Despite criticisms regarding the banks’ substantial profits, he argues that a financially robust banking system is essential for the country. He notes that, as of 2022, the return on shareholders’ funds for ANZ was around 11%, which he considers reasonable.
Another concern for New Zealand’s agricultural sector is the government’s tax revenue from agriculture. Alexander points out that the Treasury’s overestimation of this revenue in the past two years could impact future government spending.
In light of these challenges, Alexander offers several strategies for farmers navigating through economic downturns:
- Avoid making principal payments on bank loans during downcycles.
- Refrain from financially supporting family members unnecessarily.
- Sell any surplus assets.
- Exercise caution with developments requiring significant capital investment.
- Ensure alignment and communication between partners in managing the farm’s finances.
- Seek advice from top-tier farm advisors for strategic guidance.
- While the government may offer reassuring words, practical support may be limited.
