ACT’s Rural Communities spokesperson Mark Cameron is calling on the Reserve Bank to scrap its restrictive banking capital requirements, after banking bosses admitted these rules have added billions in extra costs to borrowers – hitting farmers the hardest.

“In our Banking Inquiry, BNZ has 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%. That’s $44,000 a year in extra costs for the average farmer – money that should be going into wages, local businesses, new technology, or paying down debt faster. Instead, it’s being eaten up by regulatory overreach,” says Mr Cameron.

“BNZ’s CEO understated the cost of these rules by a factor of nine due to a calculation error. He told the Select Committee the cost was around $200 million, but the real figure is closer to $1.8 billion – with $600 million of that burden falling on rural borrowers.

“The irony of these rules is that by putting pressure on sectors such as farming, it risks putting people out of business and fuelling the instability the rules are meant to prevent.

“ACT warned in 2019 that these capital requirements would hurt farmers and small businesses, and sadly, those warnings have now been vindicated. At a time when we need to be going for growth, we simply can’t afford to be having red tape strangling our rural economy.”

Notes:

During questioning from Mark Cameron, BNZ CEO Dan Huggins stated the impact of the stricter capital requirements was “roughly based on our numbers…the average of all loans is roughly 30 basis points at the moment”, going on to say “I think there's roughly $600 billion worth of loans in New Zealand. So if you see 30 points across all of those loans, then you're talking $200 million roughly, you know, plus or minus. So it's a big number.”

30 basis points or 0.3% of $600 billion worth of loans is $1.8 billion, not the $200 million as Mr Huggins claimed, likely as a result of a decimal point error when trying to do on the spot mental calculations.

BNZ also confirmed that the impact of the capital requirements was an approximate one percentage point increase in rural lending rates, equating to roughly $600 million across the $60 billion in total lending to the agriculture sector.

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