6 Jun 2015

Dairy prices will pressure banks - agency

12:15 pm on 6 June 2015

An international credit-rating agency says a second year of low milk prices will put pressure on New Zealand banks as farmers struggle with rising debt.

Dairy farmer in a milking shed

Low dairy prices could open the door for new sharemilkers. Photo: AFP

Fonterra last week lowered its forecast milk payout for the current season to $4.40 a kilo of milk solids, and its opening price for the new season is $5.25, below the break-even point for many farms.

Fitch Ratings says if dairy prices stay low, banks with a high proportion of dairy loans could face problems.

Rural loans make up between eight and 15 percent of all loans at the four biggest lenders, and most of those are to dairy farmers.

The agency says the full impact will depend on future interest rates, the level of the New Zealand dollar and how long it takes prices to recover.

Banking analyst David Tripe said the report was a warning that Fitch may lower the credit-rating for some banks, which could start making it tougher for farmers and others seeking loans.