Survey points to financial pressure involving mortgages
Farmers’ overall satisfaction with their banks is declining steadily, according to the latest survey from Federated Farmers.
In its 11th biennial banking survey, Federated Farmers revealed satisfaction with banks dropped by three points to 71% over the last six months, the lowest level since the survey began in August 2015.
The report shows businesses with mortgages increased to 81%, up 4% in the last six months. However, dairy farms are the only group to see an increase in mortgage amounts since November, and they also have the largest mortgages, most of them owing between $2 million and $20 million.
Perceptions of pressure from banks have jumped, with 16% of farmers perceiving they have come under undue pressure – up by 5% since November 2018, Federated Farmers economics and commerce spokesperson Andrew Hoggard said.
“The arable and dairy sectors are feeling this particularly, with more than one in five dairy farmers citing extra strain,” Hoggard explained. “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,” he said.
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The Reserve Bank of New Zealand’s (RBNZ) proposed increases in bank capital requirements was also found to be a factor behind the decline in farmers’ satisfaction levels with their banks, and perceptions of pressure. Hoggard mentioned banks are telling farmers the increases in bank capital will result in tougher lending conditions and higher interest rates for borrowing.
Meanwhile, New Zealand Bankers’ Association chief executive Roger Beaumont, who is pleased to see most farmers remain satisfied with their bank, said he expects RBNZ’s capital requirements proposal to a net cost to the New Zealand economy of $1.8 billion a year.
“Depending on individual banks’ commercial decisions, it’s fair to say there’s likely to be an impact on customers,” Beaumont added.
Federated Farmers said it met with RBNZ officials and put in a formal submission to the proposal. It has asked the RBNZ to rethink its one-in-200 years risk tolerance and take a less risk-averse approach, which will reduce the increase in capital required the additional costs on banks and their customers; undertake a robust and independent cost-benefit analysis, including on sectors like agriculture; and adopt a longer transitional period allowing for a more measured, gradual pace of any change.
