WITH banks under fire for ignoring the Federal Government by taking a rogue approach to jacking up home loan rates when they feel like it, the big cost of farm sector lending is now drawing flak, too.
Agribusiness loan rates were running about an average five per cent above the Reserve Bank of Australia's (RBA) cash rate when the National Farmers Federation (NFF) released its December agribusiness loan monitor findings.
Federal Nationals leader Warren Truss has blasted the banks for "shafting farmers" with rigidly high agribusiness loan costs despite successive official RBA rate cuts of 0.25pc in November and December.
"With all the attention focused on mortgage rates, agribusiness loans slip under the radar and the banks are getting away with not passing on cuts," Mr Truss said.
NFF's economics and trade manager Charlie McElhone said there was no doubt the gap between home loan rates and agribusiness lending costs, particularly overdrafts, had widened considerably.
"Prior to late 2008 the average base rate for agribusiness term loans was actually running about 0.5pc below the standard variable mortgage rate," Mr McElhone said.
Lately agribusiness term loans (at roughly a 8.2pc base rate) were averaging about 1.2pc higher than standard variable mortgages following December's RBA rate rise, with agribusiness overdrafts above 9pc, according to NFF's research with money market monitor, Canstar.
But the banking sector insists it is not using the $60 billion agricultural loan market as a cash cow to help prop up profits while other lending opportunities are slow and increasingly costly to service.
"There's a fundamental difference between business and mortgage lending which is actually dictated by international banking rules," said Westpac's agribusiness and commercial chief executive, Graham Jennings.
"Business and general loan rates have higher caps than mortgages because of a range of higher risk factors, including the greater potential for default."
Most farm loan base rates were also tied to the bank bill market which offered greater and earlier rate movement flexibility than the RBA cash rate.
"The core reason agricultural lending is different is that although it's a reliable and good lending business it doesn't enjoy the same monthly cashflow and repayment reliability as the mortgage market," Mr Jennings said.
"Ag is a pretty solid bet, and our doors are always open to any scale of farm sector lending, but the portfolio can certainly suffer in drought or other extreme wet weather, as we've seen lately, and soft commodity market cycles.
"These factors all contribute to a borrower's credit risk and their borrowing costs."
Mr Jennings said while risk ratings varied between farm businesses, the lending market was fortunate to have a lot of skills and experience in agribusiness banking to identify individual farmers' strengths, risks and production challenges to ensure customers and lenders were comfortable with loan terms.
However, the lending story is being further complicated by the rising cost of borrowing from the fragile international market, and the pressure for banks to make more return on their own deposit equity.
While bank customers are salting away a lot more money in savings accounts which, in turn, has bolstered the funds available to borrowers, the competition between financial institutions to offer the best interest reward for savings has made equity more costly to lend.
NFF's economics committee chairman John McKillop said while it was disappointing the spread between agribusiness loan costs and the cash rate had expanded considerably in recent years, it reflected the high cost of overseas debt problems on the global financial sector.
"I don't think it's a case of banks gouging our industry because they can," he said.
"I'm confident there's enough competitive tension among the main six banks servicing agriculture, plus other smaller lenders, to ensure we won't be taken advantage of.
"Hopefully the NFF's monthly loan monitor helps to keep that competitive pressure on banks by showing who is moving their rates down and how quickly they are responding to the market."
NFF's late December loan monitor report provoked grumblings among some institutions not recognised for making rate cuts because they had been slow to move, while others were noted for making no change or only modest rate reductions in November and December.
As Mr Truss observed ANZ, Commonwealth Bank, National Australia Bank, Bendigo Bank and Westpac "only passed on miserly partial cuts" in December while others "simply abandoned our farmers and hoped no one noticed they'd failed to pass on any cut at all".
He fully endorsed the idea of business loans being transparent, scrutinised and publicly reported to help small businesses, including farmers, keep tabs on bank products and the real cost of agribusiness lending.
The next NFF loan monitor report is due out next week.
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