NZ agriculture continues to reduce debt – Rabobank
Robust trading conditions in New Zealand’s agricultural sector have led to debt reduction across the entire market, Rabobank NZ chief executive Todd Charteris says.
“Last year we saw the lending market contract, so that is a sure sign that businesses have been quite profitable – and that’s a positive,” Charteris told the Herald.
He said farmers and food producers managed well through the Covid-19 pandemic over 2020.
Charteris said the bank’s discussions with clients now tended to revolve around building resilience.
For some, that meant reducing debt but for others sometimes involved investing more.
The current financial year had started strongly for the bank, he said.
“I would expect our portfolio to continue to perform well, from a credit quality point of view.”
Rabobank New Zealand Group’s net profit for 2020 came to $121.19 million, down from$129.7m in 2019, largely due to higher operating expenses.
The bank reported lending growth of $352m over the year.
Charteris said the bank’s overall food and agribusiness portfolio increased to $14.16 billion in 2020, with most of the growth coming from its agri-lending portfolio inside the farm gate.
“We brought on a number of new-to-bank clients over the course of the year and our agri-lending portfolio grew by $331m, up by around 3 per cent on the prior year,” he said.
“While this growth was lower than in previous years, this was achieved in a market environment which saw overall agricultural debt contract by 1.4 per cent.”
Many of the bank’s clients opted to pay down loan balances, which contributed to bank provisions falling from $23.5m in 2019 to $21.47m last year.
Charteris said the strong capital position of the global Rabobank Group and its locally incorporated registered bank, Rabobank NZ, meant the bank was well-placed to meet new Reserve Bank capital requirements.
In December 2019 the Reserve Bank made decisions to gradually raise bank capital requirements to make the banking system safer.
The increases were meant to start in 2020 but were delayed due to Covid-19.
Increases in the required level of capital will start from July 1, 2022.
Charteris said Rabobank,whose capital ratio sits at 13.7 per cent, was in a good position to transition to the new requirements within the timeframe specified by the Reserve Bank.
The Reserve Bank has long highlighted farm debt as an issue but said in last November’s financial stability report that the agricultural sector continued to show relatively less strain than other business sectors.
However, the Reserve Bank said a number of dairy farms remained financially vulnerable.
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