Banks still lending on quality proposals

Agriculture has always needed to borrow to expand. With a dwindling resource in land avaliable for production, urban growth pressurizing prices with lifestyle blocks, and some foreign investment buying land with goals of a longer return, land has appreciated steadily over the years.

But farmers began to rely on that capital growth to survive in their business, and forgot about the real productive value of their properties.

It's the earning capacity of the property that pays the bills, especially the debt. Banks have readjusted the security priorities when lending today, and are enforcing good cashflow responsibilities to ensure their clients survive.

The resilience of farmers has never failed to impress National Bank managing director of rural lending Charlie Graham. He said never underestimate farmers' resourcefulness to work their way through a financial situation reports Country-Wide. Reflecting on 30 years in the rural banking industry, Graham said the most common mistake farmers made was keeping everything to themselves.  As a consequence they were forever working in the business, never on it - and seeing where it should be going.

Some farming businesses had outgrown the systems and the overall awareness of financial positions had not been good. Some farmers needed to work on simplifying business accounts to help with forecasting. Some were good with income and production, but not cashflows. There had been criticism that banks were toughening up on lending to farmers, and that banks were out to reduce their exposure to dairy farming.

Graham rejected this and said that in the past financial year, the National Bank moved $2 billion of new lending - mostly to dairy farmers.
Banks did require more accurate information and better budgets. If it is a good-quality proposal, well-planned and a budget with cash surpluses and buffers to withstand a downturn, we're more than happy to lend." Funding costs have risen significantly since the financial crisis. NZ banks are reliant on wholesale funding because Kiwis are poor savers. There is also less credit circulating in the world, and regulations are forcing banks to hold more cash.

In the past the National Bank lent about 60% if the farmer had 40% equity. Graham said there was a lot of talk about 100% lending but his bank lent that on a new farm only if the borrower had an existing farm or equity. Now the National Bank was lending 50-55%.