19 Apr 2010

Reserve Bank delays tighter lending rules for rural sector

7:28 am on 19 April 2010

The country's biggest farm lender has welcomed the Reserve Bank's decision to delay the introduction of tighter rules for lending to the rural sector.

The new conditions, requiring banks to hold more capital to back rural loans, were due to come in at the end of June.

The Reserve Bank has decided to hold off until the end of the year while it looks further into the impact of the rule change on lenders and their customers.

ANZ National Bank's head of rural banking, Charlie Graham, says one of the concerns is that the new rules could increase rural lending rates by up to 0.5%.

Mr Graham says the bank did not want to restrict the flow of credit into the sector because that would have a negative affect on its productivity which would flow onto the wider economy.

A financial services specialist with PricewaterhouseCoopers, Paul Skillender, says requiring banks to hold more capital against rural lending could could mean charging rural borrowers more, reducing the availability of credit to the rural sector or requiring rural borrowers to put more equity into a loan.

Mr Skillender says all those options are difficult to do in a short period of time, which is why the banks were keen to see the Reserve Bank to delay the implementation of the new requirements.