Banks expect Hayne royal commission focus on farming to ignite political fireworks
- Posted in: Uncategorized
- 2018 June 15
The next round of banking royal commission hearings will be a political powder keg given the emotion that could be stirred up by case studies exposing banks for trying to kick farmers off their land, the banks fear.
Financing of the $60 billion agriculture sector will be the first topic under the microscope when the banking inquiry convenes in Brisbane on June 25. The inquiry is expected to grill banks on insufficient notice periods, aggressive use of contractual clauses to default loans, poor mediation processes and the improper use of receivers to sell farms.
After a relatively benign set of hearings on SME lending, the banks are expecting the commission could ignite political fires later this month by presenting aggrieved rural borrowers who have faced heavy-handed enforcement action from banks when their finances have been hit by circumstances beyond their control, such as drought or a bad crop.
Commonwealth Bank’s treatment of Bankwest borrowers will be back on the agenda, and the commission will also investigate ANZ Banking Group’s acquisition of Landmark from the Australian Wheat Board in 2009. This was a key focus of a 2016 parliamentary inquiry into loan impairments, although it was not able to conclusively determine ANZ engaged in deliberate impairments or defaults of performing loans.
Conduct at National Australia Bank, Rabobank and Bendigo and Adelaide Bank will also be examined. It appears Westpac Banking Group may escape scrutiny given the conservatism of its rural lending operations.
“Throwing farmers off the land with TV cameras in the background is a PR disaster, you just can’t win,” said a banking industry source preparing for the hearing.
“It’s so emotive. If a guy in the city gets kicked out of their house, no one cares. But you can have generations on these farms, which could fire up the minority parties as well as the Nationals if there is any outrage.”
Mistreatment of rural borrowers is an issue close to the heart of many National MPs and senators. Queensland Nationals Senator Barry O’Sullivan was one of the political agitators for this royal commission. His parliamentary colleague, Senator John Williams, has been a long time advocate for victims of bank misconduct, including many farmers.
Senator Williams was the deputy chair of last year’s Senate select committee on lending to primary production customers, which the banks expect to provide the key policy guidance for the commission in the upcoming round. Among the issues it heard about was banks changing the details of loan documents without farmers’ knowledge, and the excessive use of penalty rates.
That Senate committee was chaired by One Nation Senator Pauline Hanson, who said upon its release in December its 27 recommendations should be carried forward by the royal commission.
These included the responsible lending obligations in the National Consumer Credit Protection Act being extended to rural lending, and the unfair contract term protections for small businesses be extended to to primary production loans of less than $10 million. This could be achieved by amending the Code of Banking Practice, the committee said.
The president of the National Farmers Federation, Fiona Simson, said the royal commission needs to examine unfair lending contracts and the role of receivers appointed to sell farms for banks.
“Overdraft-based lending to agriculture for operational purposes has dried up, and loans are now more long-term. This means farmers are locked in for longer times, which becomes problematic if conditions change,” she said. “For smaller loans of less than $5 million we need to make sure transparency arrangements are in place and make sure banks write contracts in plain English.”
“And there is a perceived conflict of interest with some advisers, like investigating accountants and receivers, and we need to make sure there is no conflict of interest and people are dealt with maximum transparency and respect.”
The Senate committee recommended the government to establish a nationally consistent, compulsory farm debt mediation scheme, and to prohibit banks making unilateral changes to the loan agreements detrimental to customers.
Ms Simson said it’s hard to believe a national mediation scheme, which is supported by the Australian Banking Association, hasn’t been established yet.
“The sooner it happens, the better, and it needs to be national program,” she said.
The commission may also re-examine the Code of Banking Practice to determine if its recent changes are sufficient to protect rural borrowers.
The Senate select committee called for changes to the code to ensure banks begin talks with rural borrowers about rollovers at least six months prior before the expiry of a term loan; for it to prevent receivers being appointed to sell farms; and for it to “specifically recognise the operating environment of primary producers”.
But these recommendations have not been incorporated into the revised code, which is currently with ASIC for approval.
After it considers farming finance, round four of the commission will turn its attention to general insurance and financial services in remote, Indigenous communities.
Article Credit AFR by James Eyers