By Hugh Stringleman, Farmers Weekly
Rabobank NZ CEO Todd Charteris told the banking inquiry that its rural lending rates are competitive and the rural banking market generally is competitive. Photo: Supplied
Five leading banks have told the Parliamentary inquiry into banking competition that rural banking is competitive and that agricultural loans have higher interest rates because of higher risks.
The Finance and Expenditure Committee of Parliament has published over 140 submissions to the inquiry, many of which address stress factors in rural banking.
Rabobank NZ said that its rural lending rates are competitive and the rural banking market generally is competitive, with a number of active institutions.
Chief executive Todd Charteris cited five major lenders each having between 14 and 24 percent of the market share in lending to agriculture.
Rabobank itself now has 21.7 percent of the market, up from 16.7 percent in 2018, evidence of its competitive propositions.
Total Rabobank rural lending is over $17 billion with 4000 clients and it has attracted 40 percent of new lending in the six months to 30 June.
However, rural lending as a whole is flat, and not growing, and carries greater risks for banks than housing lending.
Rabobank does not lend for home purchasing and at 5-7 percent has a lower return on equity compared with the big four Australian-owned banks.
All profits made by Rabobank NZ since its establishment have been retained here.
ANZ said it has $17b of shareholder investment, making it one of the biggest providers of foreign capital into the country.
"With that capital ANZ is able to raise billions of dollars more from deposits and overseas funds to help New Zealanders into homes, to start and grow their businesses and to trade with the world."
Annual earnings of $2b are a headline-grabbing number but represent 12 percent return on capital, which is middle of the road for listed companies and comparable with banks around the world.
ANZ has close to $15b of loans to agriculture, the biggest market share, and that consistently remains its lowest returning banking segment.
Agri lenders feel the impacts of rising and falling interest rates sooner than most parts of the economy because about 75 percent of loans are on variable rates.
ANZ mentioned the healthy number of secondary financiers in agriculture, such as UDC Finance, PGG Wrightson, Heartland Bank, StockCo and John Deere.
It said that five major banks make rural loans and that no other multinational banking groups have entered this market because of high costs and comparatively low returns.
BNZ chief executive Dan Huggins said 40 percent of its lending goes to business and agriculture and with 27 registered banks NZ is already well served by a competitive banking sector.
The recently reported agriculture default loan rate of 1.3 percent is twice that of home lending.
Fewer than 40 customers have gone through farm debt mediation since 2019.
BNZ lending to agriculture has remained steady at $13.5b over the past six years and it employs close to 300 agribusiness specialists and support staff.
Westpac said that competition in the agribusiness market is shown by movements in market share, especially the rise of Rabobank, and that Westpac itself has gone from 12.3 percent in 2015 to 14 percent in 2023.
"We often see customers obtaining multiple offers from different banks via a tendering process, which reinforces transparent competition in the market."
About 40 percent of farm lending totalling $3b is now on a sustainable, discounted interest rate for on-farm decisions to reduce emissions.
"Westpac does not add additional lending costs to borrowers based on their emissions, nor do we restrict agribusiness lending based on borrowers' emissions."
It claims the largest branch network in the regions, where about half of its branches are located, and has more than 100 agribusiness specialists.
A joint submission from the Co-operative bank, Kiwibank, Heartland, SBS and TSB said there are barriers to entry, an uneven playing field and an inconsistent and disproportionate regulatory environment.
These factors constrain the growth of the smaller banks and maintain the two-tier oligopoly identified by the Commerce Commission.
- This story was originally published by Farmers Weekly.