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Crafar lender Rabobank sees big jump in impaired assets but lifts profit

Crafar lender Rabobank sees big jump in impaired assets but lifts profit

By Gareth Vaughan

Rural lender Rabobank New Zealand, whose exposures include a loan to the in-receivership Crafar Farms, recorded a NZ$168.2 million, or 79%, jump in impaired assets in the year to September.

The bank's General Disclosure Statement for the nine months to September 30, 2010 shows "other individually impaired assets" of NZ$382.2 million at September 30, up from NZ$214 million a year earlier. Rabobank booked NZ$29.6 million of impairment losses on loans and advances during the period, down from NZ$43.7 million in the nine months to September 2009.

Rabobank's total loans and advances, with the vast bulk to the agriculture, forestry, vita culture and fishing industries, stood at NZ$7 billion at September 30, up from NZ$6.5 billion a year earlier and up from NZ$6.9 billion at June 30 last year. Total assets rose to NZ$7.1 billion at September 30 from NZ$6.8 billion a year earlier.

The bank's rural exposures include a loan to the Crafar Farms. Just before Christmas the Government blocked a bid by Natural Dairy to buy 16 Crafar farms on 'good character' grounds, as well as blocking a retrospective bid by sister company UBNZ Assets Holdings, which bought four other Crafar farms last February. The Crafar Farms were dumped into receivership in October 2009 owing about NZ$216 million to lenders Westpac, Rabobank and PGG Wrightson Finance after revealed animal welfare issues at the farms. understands PGG Wrightson Finance's Crafar exposure is about NZ$8.6 million, leaving the balance with Westpac and Rabobank. PGG Wrightson Finance CEO Mark Darrow told last year his firm had provided against its Crafar exposure but Rabobank declined to comment.

Rural debt concerns

Rabobank's increase in impaired assets comes as concern about rural sector debt levels rumble on. The Reserve Bank warned in last November's bi-annual Financial Stability Report that farm prices might need to continue falling to see “substantial” buying interest re-emerge and also warned that further falls could see some dairy farmers, who took on debt to expand during the boom times, slip into negative equity.

The central bank said farm prices had fallen by about 15% from their mid-2008 peak by the end of 2009. Prices appeared to have fallen even further throughout 2010, but given the extremely low volume of farm sales, the current level of farm prices was “highly uncertain.” The Real Estate Institute of New Zealand said last month that the national median farm sale price rose to NZ$968,500 in the three months to November 2010 from NZ$950,00 in the three months to October. This is a 10% increase from the median of NZ$880,000 for the same period of 2009, but well below the median of NZ$1,542,750 for the equivalent period in 2008.

A total of 71 farms changed hands during November last year, up from just 46 in October and 69 in November 2009.

Meanwhile, real estate agent First National said in December its agents were reporting a significant number of farmers, whose banks helped them through last spring, could go to the wall in coming months as anticipated production fails to materialise leaving them struggling to cover additional debt incurred.

Rabobank said its interest forgone on non-accrual assets in the nine months to September was NZ$23.8 million, almost double the NZ$12.4 million in the same period of 2009.

Deposits increase

Rabobank, whose RaboDirect (formerly RaboPlus) unit has offered term deposit rates among the most competitive in the market over the past year, said deposits rose to NZ$2.5 billion at September 30, up from just under NZ$2.2 billion a year earlier. See all term deposit rates and debenture rates from 1 year to 5 years here and see all term deposit rates from 3 months to 9 months here.

Meanwhile, Rabobank New Zealand - ultimately a subsidiary of Dutch cooperative Rabobank Nederland -  posted total comprehensive income after tax of NZ$47.8 million for the nine months to September, more than double the NZ$17.9 million recorded in the same period of the previous year. This was boosted by a NZ$19.7 million rise in net interest income and the release of a NZ$9.6 million provision for risk compared to a NZ$8.6 million charge for risk in the same period of 2009.

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No worries...long as the RB and govt policies continue to push for greater bank control over the nations productive sector and household can Rabo lose! The peasants are too bloody thick to realise they are the sheep and cattle in this game.

A cousin applied approached Rabo for a job recently. The regional manager told him to go away and work as a stock agent or land agent for a few years then come back, that they preferred to hire salesman.

My point being (and it is something I have seen and been concerned about for a while) is that the boys in orange are nothing but a bunch of cowboys, and lack the basics of banking .

These writeoffs are just the beginning and we are yet to see the worst of it. Further more you can bet that this won't go unnoticed in Amsterdamn. They will be demanding a pound of flesh to repay these. Cost of capital will be hammered, with the net result being increased margins charged on rates to their farmers.

Watch out.

Well bully for Rabo , then ...... Their bankers , from experience , must truely understand the customers ( farmers ) and their needs !  ...... Wish that  the Aussie trading banks and the socialist KiwiBank could be run so well ....

.... Rabo will be the last to scream for a government bail-out as they plunge down the gurgler .


Name me any Agribusiness Banks who don't want salespeople.

Rabo is no different to any of the others,

Ever since Agribusiness bankers have had a remuneration partly based on sales,that is how it has been,

How about ASB and BNZ for example,if you want to talk about knocking on farmers' doors over the decade to when the dairy payout fell to $4.50..

Are the agribanks providing a service to farmers or are the farmers being serviced by the many indebted farmers does it take to make a fortune...just ask an agribank!

Rabobanks Rotorua salesperson did well then didnt they.

Understanderbly they believed that having 'the Crafarms portfolio" was an outstanding acheivement.

Only it was the Crafars doing the sales job!!

If Bankers keep behaving like they do, we will be inviting the Chinese to come.

Maybe that is the endgame. Americas Chinese masters arent dumb-let out the rope a little more

NB The borrower(US,Europe)  is servant to the lender(China)

The only reason the Chinese are coming through the door is because ALL banks (Kiwi, Aussie, Dutch) are wanting top dollar return for their shite lending. We've all done plenty of it.

Watch for how the agribusiness profits soar over the next 2 years as return on capital drives the market. Put in impairments at 2007 levels and these profits become obscene. There will be a >$1.5bn bank within this period. Interest rates are being pushed up gradually (internally known as repricing) to account for 'risk' ie. impairments/provisions instead of the largest business having the best rates.

Rabo the same as all banks. They were the first to put businesses into receivership in our area over several industry types. They remove their managers from interest rate discussions through the use of zero transparancy products through their internet service. Stealth at its finest.

Love to see a comparitive analysis between all the Banks impaired assets. What the Reserve Bank stated in Financial report has already started too happen. Speaking to Dairy farmers that haven't " gorged" on debt, kept within od's, paying down principle, producing surplus are under pressure to sell. Reason given debt equity ratios. Some have lost on paper up to 50% equity and valuations being based on farm sales figures up to 2oo kms away from their farms, so you have to question the validity of the  "new" valuations.The farmers then get re valued in terms of risk and there interest rates insidiously pushed up, go figure

" farmers that haven't " gorged" on debt, kept within od's, paying down principle, producing surplus are under pressure to sell. Reason given debt equity ratios."


That makes no sense Janette. I would hazard a guess that these people you talk of are telling you porkies or you have your facts wrong.

A dairy farmer that hasn't taken on debt recently and remained profitable wouldn't be getting that sort of treatment by banks even now unless there was something else going on in the business. Debt to equity ratios i would think would be used as an indication of business strength, but you would be putting the cart before the horse to say they are the sole drivers of business risk. If it is an issue of security as you may also be alluding to then it would not be in a banks interest to encourage the sale of a profitable business as there is no reason to do so that could possibly benefit the bank. I realise this sounds slightly devils advocate, however i think this debate deserves some balance.

Trev, I think it may be negative equity that is the issue in Janette's example.  I know a chap who has 5 farms. Bought his first one as his first farm decades ago and then using that as leverage got almost 100% finance for the other 4.  Given farms have come down in price, the farms with 100% borrowing are in negative equity, even though he is able to pay his bills etc.  He is being forced to sell some farms to get some equity in his operation.  Despite the farms being for sale since beginning of the season not one has sold.

Thanks CO. So the chap you know has negative equity across his whole business as a total or just 4 of the 5 in isolation?

Having talked to our accountant recently, i was under the impression that the banks were more concerned with profitability than equity ratios. i.e where we are with mostly sheep/beef farms, there is more pressure on the sheep farm with 50% equity at $1.5M (but making losses annually) than the dairy farmer/ sharemilker with negative equity but positive cashflow? The logic being one business will require additional funding (which I am told the banks aren't supposed to give to unprofitable businesses) while the other requires no additional lending and is in the processs of restoring their balance sheet.

My chap also had another non farm investment that he sold at a loss and that hasn't helped his situation.  He has, mid contract, changed (increased) the ratio of expenses his contract workers have to pay, but left their income ratio the same. I wouldn't like to bet his arbitary changing of the contract terms would hold water in court, and wonder if the hand of the banks wasn't in that as well.

I have being working with a young chap moving up in the industry, helping him with the banks. Profitablility is very much the name of the game BUT also equity levels.

During the depression one of my forefathers, lost half his farm because the bank sold it to reduce his loan so that he could meet his interest payments. The difference between what he could pay and what they wanted was 1.5%.  The buyer of the land, so sold, was a personal friend of the bank manager.  My forefather always believed he was stitched up as the land sold was prime land and it was sold very cheaply - even for the time.  I do wonder if some of this isn't going on at present with banks and the likes of MyFarm.


So am  I right in that your saying he has made his presumably contract milkers pay more of  the farm expenses with no increase in share of income% mid-way through the season ?  That is dirty.  But one would presume as contract milking jobs are scare at the moment the sharemilker hasn't  kicked up to much of a stink and or doesnt want the legal bill ?

I certainly hope that isn't common.

Has anyone done the figures lately on what some contract milkers (25 %ish) are likely to end up with after expenses ? My gut tells me that even though the payout is quite good there isn't a hell of a lot in it.  I wonder if on some of the smaller operations (250 cows with a couple doing all of the work) if they are actually making the minimum wage considering a couple would probably be putting in a 120 to 150 hour week between them.  It's a shame that this is seen a 'good' money in NZ even though a couple working 40 hr week salaried jobs in Auz probably clears more and actually has a life.



250 cow farm doing 385 / cow, 25% contract @ $7 = $168k

FWE @ 60c / KG  = $57k

Interest @ 7.5% on $150k = $11k

Plant replacement say $10k per year once set up.

Net result of $90k/ year before paying the tax man, plus a free home to live in and probably a few calves on the side. And that's on a pretty small herd so chances are if they were on 400 cow job then that result gets near double.

Correct Simfarmer. That is the only case of this I know of, but it still sucks.

Contract, and all variations of sharemilking, jobs are very scarce.  This is one of the biggest threats to the industry that I see.

If farmers who can afford to, don't start to realise that these young farmers are our future and give them a chance to progress then the industry as we know it now is doomed. Equity partnerships only have limited value and appeal.  If the BB farmers want to retire who do they think are going to buy their farms if it's not young farmers who have come up through the sharemilking system?

May Wang, Bill Ralston and Co.

Ah, but they will have to import their labour as around 43% of farms are 250cows and less, so there will not be enuf staff to go round. These are 'family farm' units.

And Walter thinks we have environmental problems now from dairy farming! :-)

250cows isn't a 2 FTE operation.  One person with casual help could run a 250cow operation.


Trev, I  just happen to think 90k before tax is a pretty shitty outcome for all the work involved. And what happens when next year or the year after they payout is $5 and we all know that that will happen hows does 40K before tax sound for a years slog sound ?

I also know that a herd manager in Auz on a 500+ cow farm will be on $A 80K plus house and a vehicle with four weeks annual leave and at least every second weekend off.  Good operations managers are getting well over 100K.  How can they afford to do this ?  Well the land price is about half as much for a start. Send 40K home a year end up with 50K NZ - actually have a life - I know what is the sensible option.

CO - of course one and bit people can run a 250 cow farm I used to contract milk 250 cows by myself with no outside help at all.  The problem i think though is that it isn't a life at all and its pretty sad that it is one of the very few ways to make a half decent living in NZ.

Younger people arn't going to be paying huge money for dairy farms when they arn't making that much out of it.   I also think dairy farm owners are trying to screw more and more out of there contract milkers and prepared to give less.

Simfarmer - I think it depends on your perspective on things.  As you will know there is a difference between contract milking and managing.  The former you are basically self employed the latter you are an employee.

Personally I would discourage a young farmer contract milking on 250 cows - you are better off on wages.  I know of a manager in NZ on $180,000 per year - yep that's as an employee, managing a large farm.  

I also know young farmers currently managing farms on salaries in the $60k range 650cows and less who are looking to go contract/lower order sharemilking.  The reason - they see it as a stepping stone to 50/50 and eventual farm ownership. They know they are in for a bit of a slog compared to being an employee, but they are prepared to put up with that if it means an opportunity to go 50/50 later. 

There are good and bad employers and employees in any industry.There is quite a switch to contract milking rather than lower order contracts due to the certainty everyone has on income/expenses given the potential for volatility in payout. Therea maybe some pretty tough contracts out there, but there are also some pretty good ones. Any young farmer contemplating any sort of self employed contract position is a fool to themselves if they don't seek advice before signing.  So many get hung up on the big numbers they ignore the fine print. It's not for everyone.

ITYS, so what do you think we should be doing about it. Rabo advertise as the responsible bank and then go and compete head on for business with the other banks, including finance companies. The grape industry just gets worse and worse all the time and the losses are going to be huge. Rabo were hot on vineyard lending in this area.

I see that a dairy farm was sold in Central Hawkes bay for about 8.5 mill, rumors are that the debt was over 17ml and could be as high as 20.  The banks have lost a huge amount of goodwill in the farming community and Ive dairy friends on very good interest rates at present ,I think about %5.47, not much margin in that for the bankls but at least they can pay it.

What sort of term would the 5.47% be Aj?  Long or short term?


It will be short term ie. <120days @ 220bps above bill rate. Very cheap money and will be increased by the banks in time..

ITYS I can get 1yr and shorter term rates at 6% and less, so while it is a good rate, for short term I would not say it was exceptional. If however it is as Andrewj suggests, a 3year rate, then that is exceptional. :-)

Trevor, I don't have my facts wrong and the farmers are not telling porkies. Agree it doesn't make sense.  The guys I talked too are beside themselves. Another one south island 6 figure surplus being "invited " to sell, Reason debt equity. These farmers had according to bank more than sufficient equity and with subsequent registered valuations now don't.

Try this one andrew farm value 22 million,debt 12million sold 4.4 million. All true, the issue is downward changing asset values and despite the optimistic scenario for commodity prices etc, etc. Banks have made provision for losses and as ITYS said will have record results.

Maybe the govt needs to take Merkyl's approach and introduce 15% levy on bank profit to be put away for the next rainy day. You have banks asset portfolios loosing value and the debt remains the same and there are requirements to be met following introduction of new reguations and disclosure demands from NZRB. I get sick of people thinking that if you come under banks scrutiny that all the farmers have done something to cause the spotlight being put on them.  Business needs to stop thinking that banks care, they don't.

Banks sell a product and business is just a vehicle. Their primary focus is a return to shareholders end of story. If people get chewed up in the process who cares?

The 4.4m sale Janette - did it go to a private buyer or corporate?

Banks sell a product and business is just a vehicle. Their primary focus is a return to shareholders end of story. If people get chewed up in the process who cares? 

I agree entirely with you Janette.

Casual Observer. Private buyer who is currently dividing the property and reselling a part of it.

CO I dont have much info think its for 3 years.

Janette are the banks chasing other assets I hear of some very agressive attempts te seize  other assets especially if the trusts are not bullet proof. I think its the move to 15 - 20 year mortgage thats creating the problem. I also see that the USA has a rather large dairy surplus and is looking to increase exports  which must put downward pressure on prices. Im sure the banks are aware of this. 



 I meant to ask you if the dairy farm that was heavily discounted was a long way from a factory? collection costs for the farmers along way from factories must be huge and will Fonterra start charging? I see registration for diesel utes is up. I was told a single cab to $600 and a double cab over $800. The madness never ends, just to top it off Nick Smith is pushing ahead with the ETS at $70 a cow.

Andrew, it wasn't a Dairy Farm and yes Banks are looking at anything they can get there hands on to get whatever money they can. I think the problem is the banks are shifting their lending and have still a long way to go to meet regulation requirements and have a lot of exposure and despite commodity prices etc farmers are struggling to make ends meet and land assets no longer give adequate security. Like you say costs keep going up. For my farm just rates, power, fuel ,road user, telephone, Acc,accountant fees$4000-$5000 a month alone.

The thing is that farmers are selling other assets to appease banks and the banks still want more. Had one case sharemilker told to reduce od by 30,000 total od 60000.told to sell replacement Heifers and a vehicle he did that got 40000 thought that would make bank happy. Their response because you have sold heifers you no longer have enough security for herd. His od reduced to 20000 and told to sell herd. The farmer in a 2nd year drought. Don't need to say anymore really.

There was talk of Fonterra charging for pick up and they did measure distance etc, but I think Fonterra has to pick up suppliers milk maybe they will start charging on new farms don't know. I think it would cause outrage if they started to charge. Farmers have enough people clipping the ticket

My understanding is that there are some transport differentials in the dairy industry.  The corporates charge it on some farms and I understand Fonterra does too, in isolated cases.

People know early on in discussions with their chosen processor, that there will be charges so when they go ahead they have accepted it.


Janette, I talked to IRD about doing my own accounts. Seems its not a problem. So next season I will attempt it.... I might lose a bit on certain things, but what I dont know wont hurt I reckon.


but what I dont know wont hurt I reckon.

If it disadvantages you isn't the issue.  If it disadvantages the IRD i.e. incorrect provisional tax etc it has the potential to cost you big time.  Make time to understand any changes to things like depreciation rates and uplift rules in relation to provisional tax.

Ignorance is not a defence when dealing with the IRD.

A good way to start would be to take the raw data from your last set of accounts. Then go through and 'do' your own tax return and compare what you come up with and that with what the accountant came up with.  Don't use the depreciation schedule from the accountants accounts,  look the rates on the web up for 'your' return. Then you can go and see what, if any differences there are between your accounts and the accountants set.

One thing to be aware of - check any agreement you may have with your accountant.  They may well claim intellectual property over the accounts they produce and claim the right to keep your data etc for the 7years required by law.  Any audit of previous years accounts could see you paying to get the information back from your accountant or paying dearly for them to deal with the IRD audit.

Be aware of dates when you have to have your returns filed by - accountants get some leeway in this that individuals don't.

The key to being able to do your own accounts is staying abreast of tax changes through legislation/budgets.  If you have a simple set of accounts it shouldn't be too difficult.  In another life I used to do mine, however, I found that staying abreast of tax/law changes while raising a family and actively farming was the most difficult part.  I was losing more than it cost me in fees.  Good luck if you do go ahead.


Thanks CO, I was at first rather daunted by the idea, but as time goes on, I feel I can do it. IRD were very very helpful. They implied that they are appalled at the costs spent on accounting, and that if you take the time to study things a bit, and ask them for some help it really isnt that complex. Of course one is cosying up to the devil, and I will be keeping that in mind. I have also noted your points! Really the decision was made when I thought what if I spent that money earmarked for the accountant on fertiliser.... it could give a significant return. We shall see.

FYI, there's a new Rabobank story up based on an interview with the bank's NZ general manager Ben Russell -