Reserve Bank rules bleeding farmers dry - Feds
There are calls for the Reserve Bank to drop its banking capital rules, which Federated Farmers says is costing farmers a fortune.
This is despite allowing for some reduction in farm working expenses, drawings, and interest rates.
About 49% of the dairy sector had negative cashflow in the 2014-15 season, the Reserve Bank says in an updated assessment of dairy sector vulnerabilities released mid December.
"Despite some farms with high debts facing considerable difficulties, most farms are expected to remain viable over the medium term," the report says. "Losses for the banking system as a whole are estimated to be manageable even under a severe stress scenario for the dairy sector."
The Reserve Bank carried out stress test modelling which assumes that banks continue to lend to farmers in negative cash flow unless the loan-to-value ratio is above 90% and future periods of positive cash flow appear unlikely.
"The vast majority of dairy farms remain viable under the base stress scenario, with non performing loans rising to 7.8% of original exposures by 2018-19. The worst case scenario features a slow recovery in the payout and a sharp decline in land values, resulting in non performing loans increasing to around 44%," it says
"While this scenario presents a highly challenging environment for the dairy sector, our results suggest that losses for the banking system as a whole would be manageable."
As at June 2015, dairy debt reached $37.9 billion, representing around 10% of total bank lending.
