Senate inquiry hears curious farm lending case

Queensland Country Life7 Jul 2017, 4 p.m.

Colin Bettles

THE Senate Select Committee’s inquiry into bank lending practices towards Australian farmers has been told a bizarre story about a loan handed out by one bank’s branch, after it was knocked back by another branch of the same bank.

The Senate inquiry was set-up in February and is being chaired by One Nation Queensland Senator Malcolm Roberts with NSW Nationals Senator and long-term farming and banking advocate John “Wacka” Williams the deputy-chair.

The farm debt examination is due to report on October 18 this year and set to conduct four public hearings so far with the first being at Charters Towers in Queensland (July 13), at Perth (July 19), Roma in Queensland (August 2) and Sydney (August 11).

Schedules detailing who will appear at the four public hearings have not yet been listed on the Committee’s website but Mr Roberts says he expects more public hearings may also be held.

Former One Nation Senator and WA farmer Rod Culleton who was disqualified from parliament earlier this year but entered politics to try and gain a Royal Commission into banking focussed on farm lending issues, is understood to have made a submission.

But more than a third of the 41 current published submissions to the inquiry have been categorised as “confidential” or “name withheld”.

Legal Aid Queensland’s submission cited a case brought before its Rural Legal Service (FRLS) that provides free advice and assistance to producers and rural based businesses that have severe debt related problems or are in dispute with their lenders.

“FRLS recently had a client whose original application was declined by one branch but accepted by another branch of the same bank on the basis of the same information,” the submission said.

“Within one month of the loan being granted, the facility was in default.

“This is in our view an example of non-prudent lending.”

The Legal Aid Queensland submission also said farmers, like most borrowers, were at a disadvantage when negotiating loans or increases in facilities.

“Banks adopt standard documentation prepared by their in-house lawyers,” it said.

“These documents are non-negotiable and are drafted primarily to protect the bank’s interest.

“Farmers have little to no bargaining power.

“At times of dispute, the power imbalance is very evident.”

It also said agricultural production by nature was seasonal and cyclical and most enterprises had long periods with no income during which time most production costs were incurred.

“These enterprises are best served by having their financial payments to banks coincide with receipt of income,” it said.

“Some banks disregard these issues and provide facilities requiring payments at times when income will not be received placing pressure on the business.”

Senator Roberts said the Committee was only about half way through publishing the submissions it has received for the inquiry but he was pleased by progress.

“It’s tracking very well and what we’ve got is quite a diversity of submissions,” he said.

“Many are from farmers and some are from the fishing industry but also a diverse group of institutions, from borrowers to banks and also others that talk about and offer solutions, have also been submitted.

“These submissions go to the heart of the matter when it comes to borrowing money and I’m very, very encouraged by those submissions.”

The Australian Restructuring Insolvency and Turnaround Association submission concluded that it was “of the view that the pretext of this inquiry is not borne out by the reality of what ordinarily occurs in the market”.

Big banks have their say

Major banking institutions have also made submissions outlining their agribusiness practices along with the Australian Bankers Association (ABA).

The ABA submission said Australia’s agricultural industry “is strong and has a positive long-term outlook”.

“Farmers and primary producers are well placed to benefit from improved domestic growth, prices and export growth, and access to trade markets from the recent free trade agreements,” it said.

“The industry is acutely aware of the difficult circumstances facing many in the agricultural industry, particularly primary producers in north west and south west Queensland.

“The ABA notes this has been due to a combination of factors, including: one of the worst and prolonged droughts on record; fluctuations in land values over the past decade; lower domestic farm-gate prices, combined with foreign exchange rates that have hurt exports; and beef producers having to contend with the consequences of the live cattle export ban in mid-2011.”

ABA said banks see the income pressures facing primary producers in their dealings with their agribusiness customers; make substantial efforts to work with agribusiness customers through difficult times, and have put in place arrangements to support a number of primary producers.

“These arrangements are assessed on a case-by-case basis as they relate to individual bank practices and the unique circumstances of their customers,” it said.

“There is no financial incentive for a bank to deliberately undervalue an asset or lose a customer.   WE SAY NOT TRUE!!!!!!

“The ABA notes that the Joint Parliamentary Inquiry into Impaired Loans in 2015 failed to find any evidence of the deliberate impairment of loans.”

The Citizens Electoral Council political party’s submissions said “To solve the credit crisis that threatens Australia's primary producers and national food security, enact a moratorium on farm foreclosures, parity pricing, a national bank and Glass-Steagall (US based banking legislation)”.

One farmer speaks up

A submission from Bradley Clarke - a partner in the family mixed sheep and cropping enterprise at Ravensthorpe in South-East WA - said “I believe we have been the victims, along with many other farming families, of a savage and calculated case of predatory banking”.

“There is no doubt in my mind based on the way we were treated and the circumstances surrounding our situation, that we have been victims of predatory banking and this has led to substantial direct and indirect losses,” it said.

A submission from legendary farm advocate Bob Iffla for the WAFarmers Corrigin/Lake Grace Zone division called for closer ties between banks and farming communities saying changes to the way banks operated over time had seen many banks close branches in many of the major towns in our area, which has led to reduced services.

“This is frustrating to their customers,” the submission said.

“These banks are now concentrating their services in the regional towns that are often hundreds of kilometres away from our farming businesses and other businesses situated in small towns.

“We believe this policy by the banks has been driven by them to purely increase their profits without concern or impact that this policy has on their farming customers.

“Most farming businesses are now further away from the decision makers in the agricultural business management personnel in the banks.

“While banks claim internet banking reduces their need for a local presence the distance between banks regional rural centres and farmers leads to poor communication and understanding.

“This is a marked move away from when branch managers, who knew their clients and how their businesses operated and were in regular contact with their customers.”

The WAFarmers submission said there a need for the reintroduction of the Commonwealth Development Bank (CDB) as it used to operate previously.

“There are still a lot of opportunities to expand agriculture and agricultural production,” it said.

“The Commonwealth Development Bank assisted many farmers including young farmers to take over and expand farming businesses that their parents had previously operated.

“This would increase competition in the agricultural financial sector.

“It could be used to encourage the young farmers to buy into an agricultural business in shares or to buy into a farming business in their own right.”

Department of Agriculture and Water Resources

The Department of Agriculture and Water Resource’s submission said total indebtedness of the agriculture, forestry and fishing industries to institutional lenders was $69.5 billion at June 30 last year.

It said bank lending accounted for 95 per cent of total institutional lending to the sector and more than 95 per cent of broadacre and dairy farms are family owned and operated.

It said nationally, total indebtedness of the agriculture, forestry and fishing industries to institutional lenders increased by 77 per cent from $42b in 2001 to $74.3b in 2009.

“Several factors contributed to the growth in debt over this period, including: lower interest rates; large increases in land values, which raised borrowing capacities; and increases in farm size and intensity of production,” the submission said.

It also said that as of March 31 this year, 4.3b was held in more than 46,500 Farm Management Deposits (FMD) scheme accounts nationally.

Other Agriculture department figures

As at 31 March 2017.

409 farm businesses had been approved for Farm Finance Concessional Loans valued at over $196m.

505 farm businesses had been approved for Drought Concessional Loans valued at $295.09m.

101 farm businesses had been approved for Drought Recovery Concessional Loans valued at $43.525m.

177 farm businesses had been approved for Dairy Recovery Concessional Loans valued at $100.034m.

51 farm businesses have been approved for Drought Assistance Concessional Loans valued at $29.436m.