Rural lending woes come knocking at Australian banks

Lenders may not be willing to take risks with little return guarantees.

Reuters reports that another thread is unravelling from the empire built by Australian banks as the Royal Banking Commission turns its oversight to the $50b agriculture sector, a business that has long been fraught with strained ties between farmers and the banks they claim do not understand their plight. 

Also read: Bank satisfaction deep dives in Australia after damning probe

Although agriculture plays a large role in Australia’s economy, farm lending doesn’t play that big a role in the banks’ loan books as it accounts for a measly tenth of NAB’s total mortgage books.

CBA also inherited a large farm loan book when it bought rural lender BankWest from HBOS Plc in 2008 whilst ANZ also acquired thousands of rural loans when it bought the Australian Wheat Board’s financial services arm in 2009.

The measly share doesn’t diminish the fact that farmers remain dependent on banks to finance their operations, which are heavily subject to volatile market conditions factors like drought, wildfires and trade disputes, a risk that banks may not be willing to take.

“[W]hat’s happened is banks have looked at their risk reduction, they see an economic downturn, they’re not interested it might not be very long, they just want to get out of that as quickly as possible,” Anne Scott, a principal adviser at the Australian Small Business and Family Enterprise Ombudsman told Reuters.

Here’s more from Reuters:

Photo from DavidMarsh - Own work, CC BY-SA 3.0