The major banks are resisting Federal Agriculture Minister David Littleproud’s demand that they offer special accounts for farmers battling drought, with one rural lender ruling it out entirely.
Ahead of this week’s drought assistance talks in Canberra, Mr Littleproud called on the banks to show a “social conscience” and offer Farm Management Deposit (FMD) offset accounts.
All major banks sent representatives to Monday’s drought talks at Parliament House, where the FMD offset matter was raised.
Those banks have said they wanted to work with the Government, but Rabobank has told the ABC it would not offer FMD accounts “at this time”.
Rural Bank is the only regional lender to offer the accounts.
Farm Management Deposits allow farmers to put up to $800,000 of pre-tax earnings into a separate account to access — and pay tax on — in a later year, for example when they are dealing with low earnings in a drought.
The Government wants the banks to allow the FMDs to be used to offset interest on their loans.
Federal Agriculture and Water Resources statistics from May this year show there are more than 50,000 FMD accounts across the country, totalling more than $5.2 billion.
Rabobank has given the strongest response to Monday’s meeting, saying it “will not be developing an FMD offset product at this time”.
While the bank said it continues to review its offerings, the lender maintains it already has options to assist farming clients to manage interest costs and provide flexibility.
Earlier in the week ANZ released details of its drought assistance package but it made no reference to the offset accounts.
It has suspended loan repayments, including for credit cards, for the next three months and committed not to increase interest rates on “distressed customers”.
ANZ said it would provide interest rate relief in cases of “extreme distress” for customers in drought classified areas.
Commonwealth Bank also pointed to other options for primary producers to set aside pre-tax income in a profitable year.
Westpac’s spokesman told the ABC the bank is “committed to continuing discussions with the Minister on this matter”.
He said only a “very small proportion” of the bank’s customer base would be eligible for the FMD offset account given it only applies to individual or partnership arrangements rather than corporate entities.
NAB said it would consider the minister’s request and was “further examining” the offset accounts but also pointed to existing policy to include the FMD’s as security for lending.
Minister calls time on the banks
On Monday the minister said the banks were resisting the offset option because they stood to lose under the arrangements.
“None of them have done it because obviously it erodes against their profitability,” he said.
The National Farmers Federation (NFF) attended the meeting is also pushing for the banks to act.
“As it stands, farm businesses, are effectively penalised at tax time, for investing in an FMDs, when an offset is not offered,” said NFF general manager Tony Mahar.
Shadow Agriculture Minister Joel Fitzgibbon agreed the banks needed to “sharpen their pencil” but said the Minister had taken the opportunity to “bash the banks” without acknowledging his own government’s lack of effective action in helping drought-affected communities.
He said the Government’s decision to act now was based on politics.
“After five years in power, and drought throughout that time, the Government is now pretending to act because they are under siege from minor parties.”
He said the Government is facing pressure from parties like One Nation and the Shooters, Fishers and Farmers party in upcoming state and federal elections.
“Farmers want action not more talk.”
Ahead of Monday’s meeting the Australian Banking Association highlighted the drought assistance measures banks already offer.
The association’s chief executive Anna Bligh said no farmer should “struggle in silence” and customer should investigate the hardship options they can access.
“The industry will continue to work with government to play its part in helping those affected.”
Banks asked to lend a hand
The drought meeting comes a fortnight after banking royal commission hearings where major rural lenders were accused of misconduct for how they treated farmers in financial distress.
Queensland grazier Mel Ruddy’s case featured in the royal commission hearings.
He has been battling drought for six years at his property west of Charleville, said bank drought support packages are a step in the right direction, even without offset accounts.
However, Mr Ruddy — who was forced to sell one of his farms due to a botched valuation by his former bank — said banks needed to go further to relieve the financial pressure on drought affected farmers.
“We need a hand from the banks for sure, most people are in debt to them and we definitely need a hand,” he said
“A freeze on repayments would be good and if banks could hold the interest rate and be not for profit for a few years to help farmers that would be a massive help,” he said.
“If they weren’t making profits and helping us stay there until this drought is over, then revert to rural lending, that would be help.”
Chris Wheatcroft, from the Rural Financial Counselling Service of WA, who appeared as a witness during the last round of the banking royal commission and criticised the behaviour of banks and receivers, welcomed the other measures they are offering.
“It’s good because it is a recognition that people are doing it tough, which is useful, because when others act like it doesn’t matter then that is really damaging,” he said.
“I strongly encourage all the banks to respond to their customers in a way that recognises what they are going through, and my sense is that they will.”
Counsel assisting the royal commission Rowena Orr last week pointed to numerous failing of banks to act fairly, reasonably and ethically when dealing with farm foreclosures, and invited Commissioner Kenneth Hayne to find misconduct among banks.
“Banks are very aware of how they are being received at the moment, but in another sense in many situations banks have looked to negotiate and assist people through,” Mr Wheatcroft said.
“I think banks are under pressure to clean it up, but overall you can’t see what they wouldn’t want to.”