TL;DR: Federated Farmers is urging an inquiry into rural banking due to declining services and increased pressure on farmers, impacting their mental health. They question Reserve Bank policies raising capital requirements, which banks use to justify higher interest rates, and suggest these policies may be worsening the situation.
Emotional Toll on Farmers
Federated Farmers is highlighting the emotional strain caused by increased banking pressure on farmers. The group hopes to persuade parliament to launch an inquiry into the rural banking sector.
Call for Inquiry
Parliament’s Primary Production Select Committee has invited submissions from banks, farmers, and other interested parties. They are considering a formal inquiry into the rural banking sector.
Decline in Banking Services
In its submission, Federated Farmers noted a significant decline in communication, service, and willingness to lend to farmers over the past five years. Their latest banking survey from November showed that one in four members faced “undue pressure” from their bankers, compared to one in ten a decade ago.
Mental Health Impact
The group expressed concern about the severe mental health toll on farmers. They noted that some older farmers, after decades of hard work, are being forced to sell their farms by their banks. Younger farmers face changing and unrealistic expectations from banks, causing many to experience poor mental health. Half of the sharemilkers surveyed said banking issues had impacted their mental health.
Investment Challenges
Farmers are struggling to make the necessary investments to meet environmental standards and boost productivity. This is crucial for the country to meet its goal of doubling exports in the next decade.
Reserve Bank Requirements
Experts consulted by Federated Farmers noted the impact of the Reserve Bank’s requirements for banks to hold more capital against rural loans. This has increased interest rates on farm loans compared to residential mortgages.
Bankers’ Perspective
The NZ Bankers Association, representing major banks, said the higher capital requirements are a significant factor in the higher average interest rates for farm loans. They explained that farm incomes are more volatile than household incomes, making farm loans riskier.
The association added that higher capital needed for rural loans comes at a cost, which banks pass on to borrowers. The large size of agricultural lending in New Zealand requires appropriate risk weightings to ensure banking system stability.
Questioning the Reserve Bank
Federated Farmers questioned whether the Reserve Bank had gone too far. Official papers estimated the cost of capital rule changes to borrowers between 0.5% and 1.2%, or between $310 million and $720 million for farmers. This is more than the forecasted costs for the He Waka Eke Noa policy before it was scrapped.
Banks’ Motives
The farming lobby also questioned whether banks were using capital increases as an excuse to raise their interest margins. They pointed to media comments by a senior Reserve Bank official who noted that NZ banks’ return on capital is higher than in other countries, possibly due to a lack of competition.
Decision Pending
Mark Cameron, chair of the Primary Production Select Committee, said members would decide in the next few weeks whether to proceed with a full inquiry.
