11 Sep 2009

Rural lending rules seen as too tough

1:55 pm on 11 September 2009

An ASB banker is concerned new rules on rural lending are still too tough and could double interest rate margins charged to farmers.

The Reserve Bank in May said it was concerned banks were not taking into account possible sharp falls in farm values.

And it said banks were not holding enough capital reserves against potential losses from farm loans.

Banks feared extra capital under international 'Basel Two' banking rules could restrict credit to farmers and increase interest rates.

The Reserve Bank is now watering down some of the new requirements.

But ASB's chief executive of relationship banking James Mitchell says the amended rules are still too tough.

Latest credit figures from the Reserve Bank show that total on-farm lending from banks increased by 15% to almost $44 billion in the past year.

Dairy debt surged by 20% to $28.5 billion. Lending to grain growers increased by 23% in the past year, to more than $700 million.