Federated Farmers have voiced their concerns regarding the current state of rural banking and are urging the forthcoming Government to initiate an independent investigation into the matter.
Richard McIntyre, the spokesperson for Federated Farmers on Domestic Commerce and Competition, highlighted the challenges farmers face, such as escalating costs, adverse weather conditions, and diminishing payouts.
He emphasised the need for clarity on whether farmers are receiving equitable treatment from their banks.
A significant point of contention is the disparity in interest rates between farm lending and home loans. McIntyre stated that while banks levy higher interest rates for farm lending, the rationale behind this remains ambiguous.
Although the Commerce Commission is presently conducting a study on personal banking, it does not
encompass rural business banking.
This omission underscores the necessity for an independent inquiry to ensure fairness and transparency in rural banking systems.
Recent data from the Federated Farmers Banking Survey in May 2023 revealed an uptick in farmers feeling undue pressure from their banks, with the percentage rising from 17% in November 2022 to 24% in May 2023.
Furthermore, farm interest rates witnessed a significant surge, with the average rate reaching 7.84% in May 2023, a 4% increase from May 2021. Overdraft interest rates also climbed, registering at 10.07% in May 2023.
McIntyre pointed out the broader economic implications of these rate hikes, noting that with New Zealand farmers shouldering approximately $63 billion in debt, a 4% rise in interest rates would result in a $2.5 billion reduction in the rural economy’s circulation.
The need for clarity on whether these elevated interest rates bolster bank profits or offset the competitive home loan market is pressing.
The potential inquiry could also delve into other emerging challenges, such as the closure of bank branches in rural areas and the introduction of new environmental banking stipulations. The closure of local branches hampers farmers’ ability to access essential banking services, especially during challenging times.
Additionally, there are concerns about the impact of sustainability initiatives like the Net-Zero Banking Alliance on competition in agricultural banking. The alliance’s collective lending strategies, which include setting emission reduction targets, have raised questions about the competitive integrity of the banking sector.
In conclusion, while individual banks have the autonomy to establish their criteria, collective requirements that limit farmers’ choices are problematic.
McIntyre suggests that the Commerce Commission should evaluate the extent to which banks can collaboratively set prerequisites without undermining consumers’ rights to a competitive marketplace.
