Reserve Bank’s Capital Rules Bleeding Farmers Dry

Federated Farmers is calling for the Reserve Bank to drop overly conservative and growth-restricting banking capital rules that are costing farmers a fortune.

"These rules are among the strictest in the world and are a total handbrake on economic growth," says Federated Farmers banking spokesperson Richard McIntyre.

"They’ve unnecessarily driven up the cost of rural lending to the point they’re bleeding farmers dry - for no good reason."

Banking rules introduced in 2019 require banks to hold enough capital to withstand a one-in-200-year financial event, adding between 50 to 120 basis points to agricultural loans.

Prior to the rule change, banks were only required to hold enough capital to withstand a one-in-100-year financial event.

Federated Farmers are calling on the Reserve Bank to revert to this much more practical and reasonable standard.

"In terms of the total cost to farmers, we’re talking about $600 million of unnecessary extra interest payments each year," McIntyre says.

"At the farm level, that’s an eye watering $44,000 of extra interest payments for your average farmer that comes straight off their bottom line.

"That’s a huge sum of money being sucked directly out of our rural communities that otherwise would have been reinvested in growing our agricultural sector."

These figures have been confirmed this week as banking bosses were hauled back in front of Parliament’s banking inquiry for further scrutiny.

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Under questioning, BNZ’s CEO told MPs the Reserve Bank’s capital rules have driven up farmers’ interest rates by 1%, meaning a 6.5% loan is now 7.5%.

McIntyre says it’s time for the Reserve Bank to wake up to the damage its policies are doing to farmers, rural communities, and the wider economy.

"These capital rules have been a real focus for Federated Farmers throughout the banking inquiry. In fact, they’re one of the main reasons we called for an inquiry in the first place.

"All the rules have done is driven up the cost of borrowing and made it harder for farmers to get loans when they need them.

"Federated Farmers will keep pushing hard for a fairer banking system for farmers - and with a change of leadership at the RBNZ, the door is certainly open to achieving that."

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