Copyright farmersweekly
Reading Time: 2 minutes Banks are reporting the lowest level of non-performing loans among farming clients in a decade and a half. According to a recent Reserve Bank Financial Stability Report, just 0.6% of farm loans were classified as non-performing at the end of September, the seventh consecutive month the number was lower or stable for farm loans. Non-performing dairy loans were even lower at 0.5%. The Reserve Bank classifies non-performing loans as those 90 days or more past due or where the borrower is deemed unlikely to be able to pay back the loan in full. The figures show the rural sector bucking the trend elsewhere in the economy where stressed borrowers are increasing in number. Agriculture, forestry, fishing and mining, and information media and telecommunications, were the only two sectors out of 13 to have posted a decline in non-performing loans in the two years to September. Large upfront capital costs, and commensurately high debt levels meant agricultural borrowers, along with commercial property owners, tended to be the most exposed to rising interest rates, the Reserve Bank noted. A fall in the effective business lending rate from close to 8% to below 6% for these borrowers, along with strong export prices in the case of agriculture, had improved the picture for these two sectors. “Lower interest rates and debt repayment have improved interest coverage ratios, bringing agriculture non-performing loans to close to a 16-year low, particularly in the dairy industry,” the Reserve Bank said in its report. However, analysts at the central bank said risks remain for rural borrowers. “Rising geopolitical tensions could increase volatility in input costs and commodity prices, while dry weather in parts of the North Island has weighed on production for some farms.” Despite these risks, the report said, the trading banks were projecting non-performing agricultural loans to be stable to lower in 2026 and 2027. Andrew Laming, a director at farm debt adviser NZAB, said the report highlighted an increasingly benign environment for rural borrowers. For dairy farmers in particular, a combination of rising land and livestock values, and the strong performance of Fonterra shares, meant improvement in credit scores which dictated bank interest margins. “You have got debt reduction and asset value that has gone up at the same time and coming together to improve balance sheets quite significantly. “As a result banks are definitely looking at their customers and going, ‘Right, the credit rating is simply a lot better.’”
