Survey shows banks snubbing Dr Bollard on farm business overdraft interest rates
Released 22 Jan 2009
New Zealand's farm businesses have received only around half of the 150 basis points cut from the Official Cash Rate (OCR) since 4 December. A survey of business overdraft interest rates, conducted among members of Federated Farmers in early to mid January, shows that business overdraft interest rates have been cut by an average of just 78 basis points. Survey results are included with this media release.
"Federated Farmers is extremely disappointed in the trading banks that the average overdraft rate for farm businesses is 10.40 percent, or over twice the current OCR. That's a massive margin banks have and continue to build at the expense of the productive export sector," says Philip York, the Federation's economics and commerce spokesperson.
"The Federated Farmers survey backs up anecdotal reports by members that since the current OCR easing cycle commenced back in July 2008, farm businesses have not seen the OCR cuts reflected in their financial facilities.
"We think Dr Bollard was mindful banks were dragging the economic chain when he warned financial institutions on 4 December to ‘do their bit', by passing on OCR savings to their customers. Banks seem to have interpreted this as meaning their retail, rather than business customers.
"The key thing about an overdraft facility is that it provides vital working liquidity to small and medium sized enterprises. Farmers, who largely receive seasonal payouts, depend on overdraft facilities to meet financial commitments throughout the balance of the year. "The banks are literally farming the farmers to keep their profits high. They know farming in particular is relatively low risk yet have built up fat margins nonetheless. With the last cut in the OCR bank margins have grown by 72 basis points alone and this is unacceptable. It is affecting the nation's economic recovery on and off farm.
"By cutting overdraft interest rates by only around half that cut from the OCR last December, there appears to be a degree of profiteering. The banks are price gouging farmers who generate most of New Zealand's export wealth. This is money being sucked out of the provincial economy.
"If the same approach to overdraft interest rates is applied to the wider business community, the banks will also be hitting the businesses which account for the majority of employment in New Zealand. "This must be of deep concern to the Government and the Reserve Bank as the Government knows New Zealand will need an export led recovery.
"By not passing on OCR savings to their business customers, banks are putting a brake on the ability of businesses to retain profit, reduce debt and retain staffing levels in the current economic climate. "The banks seem to be hiding behind a façade of mortgage rate cuts, but the New Zealand economy turns on its farmers and small to medium sized businesses. Federated Farmers feels a rocket needs to be put under the banks to get these critical business overdraft rates down," Mr York concluded.
For further information contact:
Federated Farmers Economics spokesperson, Philip York, 09 292 8843, 027 290 5418
Federated Farmers president, Don Nicolson, 03 216 7405, 027 226 6331
