Meat & Livestock News

Rabobank Faces Higher Non-Performing Loans in Agriculture

TL;DR: Rabobank’s non-performing loans in agriculture are at 4%, higher than other banks, due to its proactive approach to identifying potential loan issues early. This helps provide better support to clients. The agricultural sector faces mixed conditions, impacting overall loan performance.

Greater Vigilance Cited

Rabobank has a higher ratio of non-performing loans in the agriculture sector, attributed to its proactive approach. The Reserve Bank of New Zealand (RBNZ) reports that Rabobank has 4% non-performing loans, four times that of other major lenders.

Comparing Loan Performance

On the RBNZ Bank Financial Strength Dashboard, Rabobank shows 4% non-performing loans as of March 31. In contrast, ANZ, ASB, BNZ, and Westpac all report figures below 1%. Rabobank explains this higher ratio is due to its conservative process for identifying loans under potential pressure early. This identification is regardless of whether the bank expects a loss.

Proactive Measures

Bruce Weir, general manager for country banking at Rabobank, stated, “Our conservative approach accounts for our higher percentage of non-performing loans compared to other banks. It allows us to quickly identify food and agri clients under pressure and provide appropriate support.”

Rabobank’s early intervention aims to avoid enforcing security measures, which are considered a last resort.

Sector Challenges

The non-performing loans ratio increased from 1.5% in March 2023 to 4% this year. Rabobank attributes this rise to clients across all industries adjusting to lower commodity prices, higher interest rates, and increased farm input costs.

Understanding Loan Categories

NZAB director Andrew Laming, a former rural banker, and partner in the largest agricultural loan broker, explained that non-performing loans include impaired loans and those 90 days past due repayment. “A better gauge of changing risk in the sector is collective and individual provisions.”

Laming noted that individual provisions are allowances for expected credit impairment losses on individual loans, while collective provisions account for anticipated losses from groups of similar loans. He added that the total provisions in agricultural lending have not changed much over the past year, and Rabobank’s provisions are quite low.

Sector Variability

Some factors in the agricultural sector have improved over the past year, while others have worsened. Data on provisions can lag because they are tied to risk ratings updated during credit reviews.

Laming expects to see a slight worsening as some sheep and beef results for the fiscal year 2024 are reviewed. He noted that better-performing industries would help overall agricultural sector loan performance in RBNZ statistics.

Rabobank’s higher non-performing loans in agriculture stem from its proactive and conservative approach to identifying potential loan issues early. While this results in a higher reported ratio, it allows the bank to support its clients more effectively and avoid severe measures. The agricultural sector faces mixed conditions, with some areas improving and others facing more challenges. Rabobank remains committed to working closely with its clients to navigate these difficulties.