Banks running the country says businessman

Wednesday, 23 October 2024

“The Government no longer runs the country, the banks do,” says Cantabrian businessman Brent Rawstron.

Rawstron, a beef farmer and winemaker, believes big banks have lost their taste for business and farming risk, and prefer to sink their money into more profitable residential mortgages on orders from their Australian head offices.

But he said big banks had also developed a servant and master relationship with business borrowers and farmers, in which banks were the master, dictating how their borrowers ran their businesses.

Rawstron is one of a relatively small number of farmers and business people who sent their thoughts to MPs ahead of the first hearing on Wednesday of a Parliamentary banking inquiry being conducted by the finance and expenditure select committee.

The first big bank chief executive to face a grilling by MPs will be Antonia Watson, chief executive of ANZ, the bank that Rawstron used to borrow from.

ANZ’s submission t characterised banks as “bridges between people, businesses and countries, and their aspirations” which helped people protect and grow their wealth.

In the agri sector, where ANZ was the biggest bank, it sought to build “strong, multi-generational relationships”, and support farmers through economic cycles, it said.

After banking with ANZ for 30 years, Rawstron told MPs he saw its modus operandi change in 2018.

Initially “they supported and encouraged clients to develop their farms and businesses, offering advice, guidance and financial assistance, as and when appropriate”.

But after 2018, he said in his submission to the inquiry: “It seemed as though the bank wanted to be the master not the servant.”

He said it started to dictate how he ran his business ventures under the existing loans he already had, even though he made his interest and fee repayments “in full and on time”.

“Surely it is the businessman or farmer who has a better knowledge of their business than the bank,” he told MPs.

However, it was hard for business borrowers to resist bank demands as bank loan contracts purported to allow the bank to demand full, or partial repayment, at any time.

Rawstron believed banks had departed from a long-standing convention that they would continue to provide finance as long as businesses made their repayments on time, and in full. “The tragedy is, that this control and power is now the central driving force of productivity in this country.

“Over these last few years the farming and business sector has been under capitalised with too much money going into housing, a largely unproductive sector, yet the banks get to decide who can grow their business,” he told MPs.

Most farmers and business people who were unhappy with banks were too afraid to tell MPs about their concerns.

Rawstron believed that in recent years, ANZ had actively sought to cut its market share in rural lending, and to instead build up its more profitable urban mortgage lending.

In 2018, Rawstron had around $7 million of borrowings from the bank.

“They were making a truckload of coin from me,” he told The Post.

However, he thinks the bank’s leaders would have thought that instead of one ‘’difficult’’ farm loan, they could have 14 households, “who would all die in a ditch rather than have their houses sold from under them”.

Unfortunately, he said the other big banks had similar strategies, all chasing higher-return urban mortgages.

It’s a belief that other farmers have expressed to the inquiry through their submissions.

The big banks have acknowledged that agri lending is less profitable than residential mortgage lending.

ANZ, which has such a large share of rural lending because it bought National Bank in 2003, said agri lending was its “lowest-returning segment”.

MPs had heard mixed views on how strong the competition for farm loans was, with banks describing strong competition, with others saying that other than for the highest-quality borrowers, competition was weak.

Rabobank had grown rapidly in rural lending as the big four banks pulled back, data provided to the inquiry showed.

“Our business has grown significantly over the years and, as of June 30, 2024, we held 21.7% of New Zealand’s rural lending market, having provided 40% of all new lending to the rural sector over the first six months of 2024,” the bank said.

Kiwibank had been growing its small business banking far faster than the big four as well, and accounted for nearly a quarter of all small business lending growth in the last four years.

Rawstron did not have high hopes from the banking inquiry as banks were private businesses free to make decisions about how, and to whom, they loaned money.

Farmers would like to see the Reserve Bank ease capital requirements for farming loans, but banks have said capital requirements only made up part of the reason why farm loans were more expensive than urban mortgages.

Losses were higher on agri lending, the big banks told MPs.

Finance minister Nicola Willis has said she intended to direct the Reserve Bank Te Pūtea Matua to be more supportive of competition in banking, including letting smaller banks like Kiwibank have less disadvantageous capital requirements.

Farmers have also raised concerns that banks are less keen to lend to them because they are trying to decarbonise their loan books.

But ANZ said in its submission: “We do not currently apply restrictions businesses with a high proportion of agricultural greenhouse gases.”

However, it said: “We acknowledge this may change in the future, if we are required to manage climate transitional risk. At this stage, we have concluded it is not currently appropriate to set an emissions reduction pathway and target for the agri sector.”