Reserve Bank rules bleeding farmers dry - Feds

Federated Farmers banking spokesperson Richard McIntyre says the Reserve Bank's rules are among the strictest in the world and are a handbrake for economic growth.

"They've unnecessarily driven up the cost of rural lending to the point they're bleeding farmers dry - for no good reason," McIntyre says.

In 2019, the Reserve Bank introduced new rules requiring banks to hold enough capital to withstand a one-in-200-year financial event, adding 50 to 120 basis points to agricultural loans.

Prior to the rule change, banks were only required to hold enough capital to withstand a one-in-100-year financial event.

Now, Federated Farmers are calling on the Reserve Bank to revert to that standard.

"In terms of the total cost to farmers, we're talking about $600 million of unnecessary extra interest payments each year," McIntyre says.

He says that at the farm level, that equates to $44,000 of extra interest payments for the average farmer.

"That’s a huge sum of money being sucked directly out of our rural communities that otherwise would have been reinvested in growing our agricultural sector."

This week, Bank of New Zealand chief executive Dan Huggins told Parliament's banking inquiry that the Reserve Bank rules have driven up farmers' interest rates by 1%.

This means that a 6.5% loan is now 7.5%.

McIntyre says the Reserve Bank needs to open its eyes to the damage the policy is creating for farmers, rural communities, and the wider economy.

"These capital rules have been a real focus for Federated Farmers throughout the banking inquiry. In fact, they’re one of the main reasons we called for an inquiry in the first place," he says.

"All the rules have done is driven up the cost of borrowing and made it harder for farmers to get loans when they need them.

"Federated Farmers will keep pushing hard for a fairer banking system for farmers - and with a change of leadership at the RBNZ, the door is certainly open to achieving that."