Federal politicians are ramping up their tough-on-banks election policy platforms in the wake of a damning Royal Commission, prompting a cautious reaction from the industry which says it may have to cut back on the credit it invests in agribusiness.
Prime Minister Scott Morrison has floated the idea of using a $2 billion government fund for banks to restructure the debt of flood-hit graziers in North West Queensland. Banks would be forced to repay the loan if the farmer defaults for up to three years.
The big lenders are yet to respond publicly to the PM's flood recovery plan but industry sources say it would increase the overall risk of agricultural lending and could impact the availability of credit when the drought breaks.
Agriculture Minister David Littleproud, who was conspicuously absent from the PM’s funding announcement in Queensland early this month, said loan credit remains front of mind for him.
“I’m working closely with the banks. What we don’t need is financial capital going away from the banks,” Mr Littleproud said.
A bad outcome would be for the banks to restrict their lending.
- Chris Wheatcroft
“Lending in agriculture is about $64 billion, and perversely the banks lend about the same to Australians on credit cards - yet we are a $58b industry.
“I’ll be practical with the banks, to make sure we don’t lose the capital edge that we need.”
Labor leader Bill Shorten has pledged to review cases in the past five years where farmers defaulted on loans and incurred extra charges, create an regulatory body to assess farm foreclosures before they are approved, and raise the maximum compensation for farmers who were victim to financial injustice from $2 million to $4m.
Labor has also committed to slug the banks for a $640m fairness fund to compensate victims of bank malpractice.
The Australian Banking Association wants to see more detail.
“Banks will study this policy in detail and would expect that should Labor form Government, it will consult extensively about these proposals, including sharing the economic modelling and legal advice on which the policy is based,” said ABA chief executive Anna Bligh.
Rural Financial Counsellors said regardless of policy changes it was imperative for farmers under loan stress to contact their lenders as early as possible.
Western Australia Rural Financial Counselling Services' Chris Wheatcroft said most growers in his state had enjoyed a good season, but nevertheless borrowers should discuss debt with lenders.
“I encourage farmers to recognise it’s a shared risk and to discuss what happens in drought with their lenders,” he said. “A bad outcome would be for the banks to restrict their lending when it’s required.”
South Australian RFCS's Brett Smith said there were around 4000 farm enterprises impacted by drought in South Australia. “Some of those with no income are going to have to have serious discussions with their banks, particularly if they’re looking to extend their credit to put another crop in, or re-stock."
