Rural lending markets remain sluggish

30-08-2010 | Richard Rennie

The four major Australian-owned trading banks have been subject to pressure to improve the quality and quantity of their capital position through 2010 as new regulations loom.

Increased levels of capital are being held as security against lending with a ratio of 9.4% on so-called Tier 1 capital up from 7.8% in the second half of 2008.

Rural lending markets remain sluggish with Reserve Bank figures revealing growth of only 5% pa to May against a peak of 23% in 2008.

That compares to household debt growth of only 3% and a 10% decline in other business lending.

The Australian banks have continued to allow for impaired loans on their books with A$4.5 billion allowance made for the first half of 2010. Despite its scale that figure is down from the A$6.7 billion allowance for the second half of 2009.

However, the impact of the financial crisis continues to work through the banking system with both the ANZ and ASB's owner CBA citing agriculture as a "troublesome" sector for debt repayment.

Bankers report that forced sales here have been limited to low key affairs, other than the high profile Crafar receivership.

Generally agreement has been reached between clients and bankers that declining equity levels are going to leave parties over-exposed with land quietly going on the market for sale.

While the banking sector has copped flak for not coming to the lending party in the past year there seems greater acknowledgement by the real estate industry that buyers and sellers are simply not in agreement over property values (see New Zealand Farmers Weekly article, August 16).

"There is a fair bit of re-calibrating going on across the whole world in terms of true asset values and NZ is no different there," McBeth said.

He shared general optimism over the role NZ had to play in food production but agreed many farmers would be questioning how long they had to wait for those benefits to fully play out.

Greater transparency by bankers was welcome through such updates as Fonterra's global dairy trade auctions but inevitably contributed an element of volatility that made potential buyers more wary of borrowing funds at this stage.

Bankers appear to be continuing to lend on long term payout predictions of $5.50/kgMS with expectations of reasonable cash surpluses after operating costs to allow for capital re-investment or debt repayment.

Despite the sluggish lending market two major players remain bullish over staffing levels.

ANZ-National's head of agribusiness Charlie Graham said the bank was seeking another 20 graduate staff from Massey and Lincoln in the next two months.

Similarly Westpac's head David Jones said the bank had employed another 20 frontline staff with two more positions to fill.

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