By Gareth Vaughan
Westpac New Zealand CEO Peter Clare says he'd be "mortified" if it turned out that interest rate swap agreements the banks sold as part of loans to farmers between 2007-09 turned out to have been mis-sold.
The Commerce Commission said last month it was "conducting an assessment" of whether some bank interest rate swap agreements with farmers, and ANZ National Bank's Rural Growth Fund, raise issues under the Fair Trading Act.
Clare, who took the helm at Westpac NZ after shifting across from the bank's Australian parent as recently as April this year, told interest.co.nz all the major banks "broadly" sold a range of products now being "assessed" by the Commerce Commission.
"Certainly in particular for organisations and people who were involved in exporting, it made sense to look at those products," Clare said. "I'm confident that Westpac always appropriately sold those products, and certainly would be mortified if that was not the case."
He said as far as he was aware the Commerce Commission hadn't formally requested anything from Westpac as part of its "assessment".
In early October a Commerce Commission spokeswoman told interest.co.nz the assessment was being made after the consumer watchdog received complaints. Under the Fair Trading Act, if a court decides a company or individual has broken the law, it can fine a company up to NZ$200,000 and an individual up to NZ$60,000 per breach. Courts may also award compensation to those affected by any breach of the Act.
The Commerce Commission's move comes after a series of articles in both the Sunday Star-Times and Straight Furrow about interest rate swap agreements banks entered into with farmers between 2007 and 2009, a period in which interest rates were mostly much higher than today. The reports said the swaps were sold by banks including ANZ National, Westpac and ASB to farmers as insurance against interest rates rising.
Then when interest rates actually fell, farmers were left locked in to high interest rates they couldn't escape from, unless they paid pricey break fees. The SST said the deals had helped send some farmers to the wall and left some with the choice of coughing up something in the vicinity of NZ$1 million in break fees, or of paying interest of around 10%, significantly higher than the about 6% for a standard floating rate mortgage.
According to the SST, a major gripe some farmers have is they didn't realise the swap agreements had provisions allowing the banks to increase their margins.
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