Banking system remains resilient against dairy sector challenges

The Reserve Bank of New Zealand’s (RBNZ) ‘Summary of the dairy portfolio stress testing exercise’ released today has found that the scenarios tested were manageable for banks, and stated our banking system is robust.

It showed that New Zealand’s five largest rural lender banks are well placed to continue supporting farming customers through current challenges, as well as any severe circumstances in the dairy sector should they occur.

Since the Global Financial Crisis, there have been numerous legislative and regulatory changes for banks, including the requirement for banks to hold increased capital against their lending. This additional capital comes at a significant cost for banks, but this provides the banking system with a greater ability to cope with periods of stress.

“Banks with large dairy portfolios remain resilient, well-funded, and are well-positioned to continue working with dairy farmers through any further movements in dairy prices,” said New Zealand Bankers’ Association acting chief executive, Antony Buick-Constable.
“Banks are regular participants in RBNZ stress testing exercises, and also conduct their own stress tests – this contributes to a stable and robust banking system. Our banks understand the volatility and complexity of the dairy sector, and plan for this accordingly.
Despite the current lows in the dairy cycle, the longer-term outlook for dairy and protein production remains positive. It’s important to keep this bigger picture in mind and support our farmers during tough times, and that’s exactly what our banks do,” he added.

Banks continuing to support farmers

Banks work closely and constructively with their dairy farming customers to understand individual situations and needs. This includes helping to ensure business plans and banking arrangements reflect the conditions they are experiencing, and assisting them to make adjustments and reduce costs in o der to maintain a sustainable business.
“Banks are continuing to work closely with farmers facing financial challenges to see how they can work together through their current circumstances, in order to maintain the viability of their businesses. It’s very much in the banks’ interests to support farmers through both the tough times and the good. Banks will continue to play a key role in helping facilitate business sustainability and growth for farmers and New Zealand,” said Mr Buick-Constable.
A range of potential measures is available across the banking sector for farmers in financial stress, and these will vary from case to case. Depending on individual circumstances, banks might be able to look at reducing or suspending principal payments on loans and temporarily moving to interest-only payments. Banks might also consider allowing term deposits to be broken without associated costs. Banks can also help by providing affected farmers with financial management and budgeting assistance, and access to workshops on enhancing farm productivity and performance.

In times of financial stress, two-way communication is essential to help farmers facing challenges. Farmers who find themselves in financial difficulty or with a change in their financial outlook should speak with their bank as early as possible to find out whether specific assistance is available for them. Support for farmers is also available from a range of other organisations including Rural Support Trusts, Federated Farmers, DairyNZ, and the Ministry for Primary Industries.
The banking sector understands, and proudly supports, the huge contribution that the farming sector makes to our national economy. Banks have a long history of working with farmers to support their businesses and providing financial services to the farming sector, and this relationship will continue.