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Building strong sustainable farms - the shakedown from new capital rules

It’s been two months since the Reserve Bank of New Zealand (RBNZ) announced the outcome of its capital review, requiring gradual changes to the amount of capital NZ banks must hold against their loans. How did we get here? And what do the changes mean, especially for NZ’s dairy farmers?


ANZ News put these questions and more to ANZ Commercial & Agri Managing Director Mark Hiddleston.


Where have these changes come from and why?


The RBNZ’s mandate to ensure the financial stability of the economy has seen it over the last decade repeatedly highlight agri-business lending – both on-farm and in the wider industry.


It expressed concern over the growth of this debt and the effect of volatility in commodity prices on how this borrowing is managed. See here.


Now, the RBNZ has chosen to use capital ratios as a way of ensuring New Zealand has a robust and stable economy.


This increase in capital is significant for banks, but it’s too early to say exactly how it will affect individual customers.


Banks are required to hold differing levels of capital against different sectors. The higher the risk – like in the agri sector - the more capital banks must hold against each loan.


ANZ has been planning for these changes since the original consultation began with the RBNZ and is in a strong capital position.


Any changes we make will be implemented gradually and we will discuss their impact with each customer, working with them to ensure the best outcome.

ANZ New Zealand Commercial & Agri Managing Director Mark Hiddleston


What will this mean for dairy farmers?


Dairy farmers can expect continued support from ANZ. ANZ believes in the long term the whole country will benefit from the RBNZ’s changes through a more stable and robust economy.


In the shorter term, farmers will increasingly need to provide us with good quality information, and be able to demonstrate that their farms are worth investing in.


This means they must be more innovative and efficient, looking for improvements in areas such as pasture management, the use of precision farming techniques, while also seeking advances in genetics, pastures, forages and new technology.


Increasingly land values are likely to reflect the efficiency, proven performance and productive capability of the farm.


Making long term plans around the environment, succession and governance will ensure that farmers are better prepared for the ups and downs of the commodity cycle and are more resilient to factors such as severe weather events and shifting consumer preferences.


All those involved in the sector – banks, farmers and shareholders - can expect to carry some of the cost of these changes in the short term.


But ANZ believes the end result, a stable and robust financial system, is ultimately in everyone’s interests.



"Increasingly land values are likely to reflect the efficiency, proven performance and productive capability of the farm."


ANZ New Zealand Commercial & Agri Managing Director Mark Hiddleston.



When it comes to farms, how does ANZ view the introduction of new regulations, especially those related to the environment?


All farmers will be aware of the increasing number of regulations that govern their activitivies.


To be able to assess the financial and environmental sustainability of a farming business, banks need to work with farmers and support their efforts to make sure they are taking steps to comply with these regulations.


This is nothing new, but simply reflects an increasing expectation that to have a social licence to operate, all businesses – including banks and farms - must do so in a responsible and environmentally sustainable fashion.


For many years, ANZ has been supporting the sector by helping farmers meet their environmental obligations by lending to them to do this. 


ANZ offers low-interest ‘Environment Loans’ to New Zealand farmers, to support their investment in water, waste and energy.


What will the bank now be looking for when considering a funding proposal? Will this be the same for existing lending and new lending?


Every farm is unique in terms of its personal and business goals.


We will want to see the normal financial data - budgets, actuals, cash flow – and any succession plans that demonstrate the long-term sustainability and viability of the business. 


Other information may be required depending on your personal and business goals.


As part of our decision to lend, we have always considered on a case-by-case basis the ability of each farmer to operate an effective and sustainable business.


There is an expectation these businesses should be profitable and that farmers should be able to work towards paying back loan principals.


Understanding the current position, outlook and ambitions of each farming business are essential for banks to ensure they lend in a responsible way.


This expectation will be the same for existing and new lending and forms the basis of ANZ’s annual review of the businesses we bank.


Any advice to farmers as they plan for the year ahead?


  • Talk to your bank. Ask how it views your business and what it would like to see for the farm to become more financially and environmentally sustainable.


  • Be open with your bank about your concerns and needs. Like ANZ, we’d expect all banks view to themselves as partners in their customer’s business and want to have clarity around the things that worry their customers so they can help and be part of the businesses success.


  • Ask for advice and work with your farm consultant and accountant to make sure you have access to accurate on-time information on the business and its performance.


  • Where possible, pay down debt. Depending on other factors affecting your business, we’d expect this to increase your equity, strengthen your balance sheet and make your business better able to weather the ups and downs of the commodity cycle and deal with costs related to changes in regulation.


  • Take time to understand local resource plans and the impact they may have on future spending, especially the potential need to spend on technology and improvements to on-farm assets to meet regulatory and compliance requirements.


  • Keep an open mind to new opportunities and technology. In a globalised and connected world there are opportunities to add value by meeting heightened customer expectations over quality, purity and traceability.


For media enquiries contact Siobhan Enright, 021 991 325


Eligibility and lending criteria, terms, conditions and fees apply to the ANZ Environmental Loan. This material is for information purposes only and is subject to change. Its content is intended to be of a general nature, does not take into account your financial situation or goals, and is not a personalised financial adviser service under the Financial Advisers Act 2008.  You should seek professional advice relevant to your individual circumstances.  While ANZ Bank New Zealand Limited (“ANZ”) has taken care to ensure that this information is from reliable sources, it cannot warrant its accuracy, completeness or suitability for your intended use.  To the extent permitted by law, ANZ does not accept any responsibility or liability arising from your use of this information.


A version of this article was first published in DairyNZ's March 2020 edition of Inside Dairy.


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